We develop and implement a new method for maximum likelihood estimation in closed-form of stochastic volatility models … unobservable volatility state, to an approximate likelihood procedure where the volatility state is replaced by the implied … volatility of a short dated at-the-money option. We find that the approximation results in a negligible loss of accuracy. We …

It is a common practice in finance to estimate volatility from the sum of frequently-sampled squared returns. However …-time assumption on the underlying returns. Under our framework, it becomes clear why and where the usual' volatility estimator fails …

findings of the empirical literature: excess volatility of the market price compared to the asset's fundamental value, serially … correlated volatility, contemporaneous volume-volatility correlation, and excess kurtosis of price changes. We implement a …

The leverage effect refers to the generally negative correlation between an asset return and its changes of volatility … volatility estimated from high-frequency data. The puzzle lies in the fact that such an intuitively natural estimate yields …