Realized Volatility or Price Range: Evidence from a discrete simulation of the continuous time diffusion process

Degiannakis, Stavros and Livada, Alexandra (2013): Realized Volatility or Price Range: Evidence from a discrete simulation of the continuous time diffusion process. Published in: Economic Modelling No. 30 (2013): pp. 212-216.

Abstract

The study provides evidence in favour of the price range as a proxy estimator of volatility in financial time series, in the cases that either intra-day datasets are unavailable or they are available at a low sampling frequency. A stochastic differential equation with time varying volatility of the instantaneous log-returns process is simulated, in order to mimic the continuous time diffusion analogue of the discrete time volatility process. The simulations provide evidence that the price range measures are superior to the realized volatility constructed at low sampling frequency. The high-low price range volatility estimator is more accurate than the realized volatility estimator based on five, or less, equidistance points in time. The open-high-low-close price range is more accurate than the realized volatility estimator based on eight, or less, intra-period log-returns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Integrated Volatility, Intra-day Volatility, Price range, Realized volatility, Stochastic Differential Equation.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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