based on what i've been seeing, i totally misunderstood your question. i thought you had an hourly estimate based on 8 hours and wanted to get a daily estimate. my bad. it should teach me to keep my mouth shut.
On Fri, Oct 10, 2008 at 5:16 PM, Shane Conway wrote:
Thanks! That's my problem: I can't rely on the observations being evenly spaced (hence my reference to "irregularly spaced"). Do most people interpolate their data so that it's regularly spaced first, and if so, won't that also bias the calculation? Any suggestions for how to produce a daily volatility calculation using an irregularly spaced intraday time series? I'm not married to using the square-root rule if there's a better alternative... On Fri, Oct 10, 2008 at 5:06 PM, Chiquoine, Ben <BChiquoine at tiff.org> wrote:
I believe Davids suggestion is correct if your 8 hours are
consecutive.
This may be pointing out the obvious but if your observations are
unevenly separated throughout the day your return series will not be
hourly and if there is mean reversion or momentum (evidence of both
have
been found in fx data depending on the frequency of observation) your
results will be biased. Unfortunately I don't have a better way for
you
to approach the problem this is just a heads up
Good luck,
Ben
-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of
davidr at rhotrading.com
Sent: Friday, October 10, 2008 4:52 PM
To: Shane Conway; r-sig-finance at stat.math.ethz.ch
Subject: Re: [R-SIG-Finance] Scaling risk for irregularly spaced time
series?
You basically said it: scale by the 'activity'.
If you are measuring activity for 8 hours and that is your day,
then sigma{1 hour} * sqrt(8) is your daily vol,
assuming lots of untrue things, of course ;-)
-- David
-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of Shane
Conway
Sent: Friday, October 10, 2008 3:41 PM
To: r-sig-finance at stat.math.ethz.ch
Subject: [R-SIG-Finance] Scaling risk for irregularly spaced time
series?
I'm working with intraday FX price data (primarily hourly bars). I
want to scale my volatility calculations up to the daily level.
Ordinarily I would us the square-root-of-time rule and multiple by
the
sqrt(T).
The question is: how do people deal with this scaling factor when the
time series is irregularly spaced? If I apply sqrt(24) for hourly
data but I only have 8 hours of data (for instance), my calculation
will be way off.
Thanks,
Shane
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