(Understanding, Optimizing, Using and Forecasting) Realized Volatility and Correlation
October 26, 1999
Torben G. Andersen, Tim Bollerslev, Francis X. Diebold and Paul Labys
ABSTRACT
We review and synthesize our recent work on realized volatility in financial markets. This includes (1) constructing
and interpreting realized volatilities for a variety of asset returns ("understanding"), (2) determining
underlying sampling frequencies high enough to produce precise estimates yet low enough to mitigate microstructure
bias ("optimizing"), (3) putting realized volatilities to work in various contexts, such as the production
of standardized returns series with desirable properties ("using"), and (4) using predictions of realized
volatility for improved financial risk management ("forecasting").
Subject: Investments/Volatility of Asset Prices; Investments/Econometrics; Investment/Derivatives
Classification: Empirical/Theoretical
Andersen: (847) 467-1285 t-andersen@nwu.edu
Bollerslev: (919) 660-1846 boller@econ.duke.edu
Diebold: (610)585-4057 fdiebold@stern.nyu.edu
Labys: (215) 545-0450 labys@ssc.sas.upenn.edu
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