Handbook of Financial Time Series

pp 577-598


Estimating Volatility in the Presence of Market Microstructure Noise: A Review of the Theory and Practical Considerations

  • Yacine Aït-SahaliaAffiliated withPrinceton University and NBER, Bendheim Center for Finance, Princeton University
  • , Per A. MyklandAffiliated withDepartment of Statistics, The University of Chicago Email author 

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This chapter reviews our recent work on disentangling high frequency volatility estimators from market microstructure noise, based on maximum-likelihood in the parametric case and two (or more) scales realized volatility (TSRV) in the nonparametric case. We discuss the basic theory, its extensions and the practical implementation of the estimators.