A feasible central limit theory for realised volatility under leverage

Ole E. Barndorff-Nielsen Department of Mathematical Sciences, University of Aarhus, Ny Munkegade, DK-8000 Aarhus C, Denmark 

Neil Shephard Nuffield College, Oxford OX1 1NF, UK. 

Abstract

In this note we show that the feasible central limit theory for realised volatility and realised covariation recently developed by Barndorff-Nielsen and Shephard applies under arbitrary diffusion based leverage effects. Results from a simulation experiment suggest that the feasible version of the limit theory performs well in practice. 

Keywords: Euler approximation; Functional central limit theory; Quadratic variation; Realised volatility; Stochastic volatility.

Click here to download paper