Sudden breaks in drift-independent volatility estimator based on multiple periods open, high, low, and close prices

摘要

The study of volatility is of considerable interest because of its importance in portfolio allocation, risk management, derivatives pricing, futures hedging, trading strategies and asset pricing. Several studies have highlighted the importance of volatility estimators that utilise the opening, high, low and closing prices. Among them, the Yang & Zhang (YZ) estimator proposed by Yang & Zhang (2000) is unbiased regardless of the drift parameter, and incorporates opening jump in estimation. In this paper, we make use of the variance estimator that utilises high, low and closing prices proposed by Yang & Zhang (2000) in the context of detecting sudden changes in volatility. In particular, we investigate the performance of Inclán and Tiao's (1994) Iterated Cumulative Sum of Squares (IT-ICSS) algorithm based on the YZ estimator and compare it with the performance of the demeaned squared returns as alternative estimators of the unconditional variance of a time series by means of Monte Carlo simulation experiments.