Quotation Fissler, Tobias, Podolskij, Mark. 2017. Testing the maximal rank of the volatility process for continuous diffusions observed with noise. Bernoulli. 23 (4B), 3021-3066.


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Abstract

In this paper, we present a test for the maximal rank of the volatility process in continuous diffusion models observed with noise. Such models are typically applied in mathematical finance, where latent price processes are corrupted by microstructure noise at ultra high frequencies. Using high frequency observations, we construct a test statistic for the maximal rank of the time varying stochastic volatility process. Our methodology is based upon a combination of a matrix perturbation approach and pre-averaging. We will show the asymptotic mixed normality of the test statistic and obtain a consistent testing procedure. We complement the paper with a simulation and an empirical study showing the performances on finite samples.

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Publication's profile

Status of publication Published
Affiliation External
Type of publication Journal article
Journal Bernoulli
Citation Index SCI
WU-Journal-Rating new FIN-A, VW-B
Language English
Title Testing the maximal rank of the volatility process for continuous diffusions observed with noise.
Volume 23
Number 4B
Year 2017
Page from 3021
Page to 3066
URL http://projecteuclid.org/euclid.bj/1495505084
DOI https://doi.org/10.3150/16-BEJ836
Open Access N

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Fissler, Tobias (Details)
External
Podolskij, Mark (Aarhus University, Denmark)
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