[R-SIG-Finance] Scaling risk for irregularly spaced time series?

[davidr at rhotrading.com]

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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