knChooseReMeDI: ReMeDI tuning parameter

In highfrequency: Tools for Highfrequency Data Analysis

ReMeDI tuning parameter

Description

Function to choose the tuning parameter, kn in ReMeDI estimation. The optimal parameter kn is the smallest value that where the criterion:

SqErr(k_{n})^{n}_{t} = \left(\hat{R}^{n,k_{n}}_{t,0} - \hat{R}^{n,k_{n}}_{t,1} - \hat{R}^{n,k_{n}}_{t,2} + \hat{R}^{n,k_{n}}_{t,3} - \hat{R}^{n, k_{n}}_{t,l}\right)^{2}

is perceived to be zero. The tuning parameter tol can be set to choose the tolerance of the perception of 'close to zero', a higher tolerance will lead to a higher optimal value.

Usage

knChooseReMeDI(
  pData,
  knMax = 10,
  tol = 0.05,
  size = 3,
  lower = 2,
  upper = 5,
  plot = FALSE
)

Arguments

pData	xts or data.table containing the log-prices of the asset.
knMax	max value of kn to be considered.
tol	tolerance for the minimizing value. If tol is high, the algorithm will choose a lower optimal value.
size	size of the local window.
lower	lower boundary for the method if it fails to find an optimal value. If this is the case, the best kn between lower and upper is returned
upper	upper boundary for the method if it fails to find an optimal value. If this is the case, the best kn between lower and upper is returned
plot	logical whether to plot the errors.

Details

This is the algorithm B.2 in the appendix of the Li and Linton (2019) working paper.

Value

integer containing the optimal kn

Note

We Thank Merrick Li for contributing his Matlab code for this estimator.

Author(s)

Emil Sjoerup.

References

Li, M. and Linton, O. (2019). A ReMeDI for microstructure noise. Cambridge Working Papers in Economics 1908.

Examples

optimalKn <- knChooseReMeDI(sampleTData[as.Date(DT) == "2018-01-02",],
                            knMax = 10, tol = 0.05, size = 3,
                            lower = 2, upper = 5, plot = TRUE)
optimalKn
## Not run: 
# We can also have a much larger search-space
optimalKn <- knChooseReMeDI(sampleTDataEurope,
                            knMax = 50, tol = 0.05,
                            size = 3, lower = 2, upper = 5, plot = TRUE)
optimalKn

## End(Not run)

highfrequency documentation built on Oct. 4, 2023, 5:08 p.m.