Date: 10 Feb 2009

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

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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.