Edgeworth corrections for spot volatility estimator [article]

Lidan He and Qiang Liu and Zhi Liu
2020 arXiv   pre-print
We develop Edgeworth expansion theory for spot volatility estimator under general assumptions on the log-price process that allow for drift and leverage effect. The result is based on further estimation of skewness and kurtosis, when compared with existing second order asymptotic normality result. Thus our theory can provide with a refinement result for the finite sample distribution of spot volatility. We also construct feasible confidence intervals (one-sided and two-sided) for spot
more » ... by using Edgeworth expansion. The Monte Carlo simulation study we conduct shows that the intervals based on Edgeworth expansion perform better than the conventional intervals based on normal approximation, which justifies the correctness of our theoretical conclusion.
arXiv:2007.11405v1 fatcat:2lmubcocwrgynp2yhmiztawxra