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Range-based estimation of stochastic volatility models

Publication ,  Journal Article
Alizadeh, S; Brandt, MW; Diebold, FX
Published in: Journal of Finance
January 1, 2002

We propose using the price range in the estimation of stochastic volatility models. We show theoretically, numerically, and empirically that range-based volatility proxies are not only highly efficient, but also approximately Gaussian and robust to microstructure noise. Hence range-based Gaussian quasi-maximum likelihood estimation produces highly efficient estimates of stochastic volatility models and extractions of latent volatility. We use our method to examine the dynamics of daily exchange rate volatility and find the evidence points strongly toward two-factor models with one highly persistent factor and one quickly mean-reverting factor.

Duke Scholars

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Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 2002

Volume

57

Issue

3

Start / End Page

1047 / 1091

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
 

Citation

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Alizadeh, S., Brandt, M. W., & Diebold, F. X. (2002). Range-based estimation of stochastic volatility models. Journal of Finance, 57(3), 1047–1091. https://doi.org/10.1111/1540-6261.00454
Alizadeh, S., M. W. Brandt, and F. X. Diebold. “Range-based estimation of stochastic volatility models.” Journal of Finance 57, no. 3 (January 1, 2002): 1047–91. https://doi.org/10.1111/1540-6261.00454.
Alizadeh S, Brandt MW, Diebold FX. Range-based estimation of stochastic volatility models. Journal of Finance. 2002 Jan 1;57(3):1047–91.
Alizadeh, S., et al. “Range-based estimation of stochastic volatility models.” Journal of Finance, vol. 57, no. 3, Jan. 2002, pp. 1047–91. Scopus, doi:10.1111/1540-6261.00454.
Alizadeh S, Brandt MW, Diebold FX. Range-based estimation of stochastic volatility models. Journal of Finance. 2002 Jan 1;57(3):1047–1091.
Journal cover image

Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 2002

Volume

57

Issue

3

Start / End Page

1047 / 1091

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment