Volatility estimation from a view point of entropy

TL;DR

This paper reviews and unifies different volatility estimation methods, introduces an alternative estimator to address microstructure noise issues, and enhances understanding of entropy-based approaches in financial volatility analysis.

Contribution

It unifies existing volatility estimators within an entropy-based framework and proposes a new estimator resilient to microstructure noise.

Findings

Unified understanding of volatility estimators

Proposed an alternative estimator robust to microstructure noise

Enhanced methodology for volatility estimation

Abstract

In the present paper, we first revisit the volatility estimation approach proposed by N. Kunitomo and S. Sato, and second, we show that the volatility estimator proposed by P. Malliavin and M.E. Mancino can be understood in a unified way by the approach. Third, we introduce an alternative estimator that might overcome the inconsistency caused by the microstructure noise of the initial observation.