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Centre for Mathematical Physics and Stochastics
Department of Mathematical Sciences, University of Aarhus

Funded by The Danish National Research Foundation

MPS-RR 2002-6
March 2002

Realised power variation and stochastic volatility models


Ole E. Barndorff-Nielsen

Neil Shephard


Limit distribution results on realised power variation, that is sums of increments of a process, are derived for certain types of semimartingale with continuous local martingale component, in particular for a class of flexible stochastic volatility models. The theory covers, for example, the cases of realised volatility and realised absolute variation. Such results should be helpful in, for example, the analysis of volatility models using high frequency information.

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This paper has now been published in Bernoulli 9 (2003), 243-265