A realised volatility measurement using quadratic variation and dealing with microstructure effects

Abstract

A volatility measurement that overcomes the respective problems encountered when implementing the realised and Discrete Sine Transform volatility measurements is defined and discussed in this paper. First the shortcomings of these measurements are briefly discussed. Then a modified realised volatility measurement is defined and relevant theoretical results are derived. Finally simulation results are used to evaluate these three volatility measurements.

ORiON Vol. 22 (2) 2006: pp. 117-129