A Fourier transform method for nonparametric estimation of multivariate volatility

Mathematics – Statistics Theory

Scientific paper

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Published in at http://dx.doi.org/10.1214/08-AOS633 the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of

Scientific paper

10.1214/08-AOS633

We provide a nonparametric method for the computation of instantaneous multivariate volatility for continuous semi-martingales, which is based on Fourier analysis. The co-volatility is reconstructed as a stochastic function of time by establishing a connection between the Fourier transform of the prices process and the Fourier transform of the co-volatility process. A nonparametric estimator is derived given a discrete unevenly spaced and asynchronously sampled observations of the asset price processes. The asymptotic properties of the random estimator are studied: namely, consistency in probability uniformly in time and convergence in law to a mixture of Gaussian distributions.

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