Jump-robust volatility estimation using dynamic dual-domain integration method

Abstract

In this paper, we propose a nonparametric procedure to estimate the volatility when the underlying price process is governed by Brownian semimartingale with jumps. The estimator combines the threshold technique and dynamic dual-domain integration approach for volatility when the price process is driven only by diffusions without jumps. The proposed estimator is consistent and asymptotically normal. A simulation study shows that the proposed estimator exhibits excellent performance over a wide range of jump sizes and for different finite sampling frequencies. A real data application is given to illustrate the potential applications of the proposed method.