Major Oral: "Optimal Kernel Estimation of Spot Volatility with Microstructure Noise Using Pre-Averaging"

Speaker: Bei Wu, Washington University in Saint Louis

Abstract: We present a new type of pre-averaging/kernel estimator for spot volatility in a general continuous Itô semimartingale model under the presence of leverage and microstructure noise. We prove central limit theorems for the estimation error with an optimal rate and study the problem of optimal bandwidth and kernel selection. A feasible implementation of the proposed estimators is also developed and the superior performance of the proposed estimators are illustrated by Monte Carlo experiments. We further apply the kernel pre-averaging estimator to the estimation of volatility functionals and rough volatility model. This is joint work with Dr. Figueroa-Lopez.

Host: Jose Figueroa-Lopez

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