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

[Shane Conway]

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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