Estimation of objective and risk-neutral distributions based on moments of integrated volatility

Ren Garcia, Marc André Lewis, Sergio Pastorello, Éric Renault

Research output: Contribution to journalArticleResearchpeer-review

26 Citations (Scopus)


In this paper, we present an estimation procedure which uses both option prices and high-frequency spot price feeds to estimate jointly the objective and risk-neutral parameters of stochastic volatility models. The procedure is based on a method of moments that uses analytical expressions for the moments of the integrated volatility and series expansions of option prices and implied volatilities. This results in an easily implementable and rapid estimation technique. An extensive Monte Carlo study compares various procedures and shows the efficiency of our approach. Empirical applications to the Deutsche markUS dollar exchange rate futures and the S&P 500 index provide evidence that the method delivers results that are in line with the ones obtained in previous studies where much more involved estimation procedures were used.

Original languageEnglish
Pages (from-to)22-32
Number of pages11
JournalJournal of Econometrics
Issue number1
Publication statusPublished - Jan 2011
Externally publishedYes


  • Implied volatility
  • Moments of integrated volatility
  • Objective distribution
  • Realized volatility
  • Risk-neutral distribution
  • Volatility risk premium

Cite this