Forecasting Volatility with Time-Varying Leverage and Volatility of Volatility Effects

Estimating and Forecasting Volatility using Leverage Effect

This research provides a theoretical foundation for our previous empirical finding that leverage effect has a role in estimating and forecasting volatility. This empirics is also related to earlier econometric studies of news impact curves (Engle and Ng, Chen and Ghysels). Our new theoretical development is based on the concept of projection on stable subspaces of semimartingales. We show that ...

Realized volatility forecasting in the presence of time-varying noise

Observed high-frequency …nancial prices can be considered as comprising two components, a true price and a market microstructure noise perturbation. It is an empirical regularity, coherent with classical market microstructure theories of price determination, that the second moment of market microstructure noise is time-varying. We study the optimal, from a …nite-sample forecast MSE standpoint, ...

Forecasting Volatility

The Impact of Jumps and Leverage in Forecasting Co-Volatility

The paper investigates the impact of jumps in forecasting co-volatility, accommodating leverage effects. We modify the jump-robust two time scale covariance estimator of Boudt and Zhang (2013) such that the estimated matrix is positive definite. Using this approach we can disentangle the estimates of the integrated co-volatility matrix and jump variations from the quadratic covariation matrix. ...

Stochastic volatility and stochastic leverage

This paper proposes the new concept of stochastic leverage in stochastic volatility models. Stochastic leverage refers to a stochastic process which replaces the classical constant correlation parameter between the asset return and the stochastic volatility process. We provide a systematic treatment of stochastic leverage and propose to model the stochastic leverage effect explicitly, e.g. by m...