Two-Scales Realized Volatility is a statistical measure of asset price fluctuation that captures volatility across two distinct time horizons or sampling frequencies. It is often used to differentiate between continuous price movements and discrete jumps or microstructure noise in financial markets.
Mechanism
This metric calculates realized variance using high-frequency data and then adjusts it by comparing it with a lower-frequency measure. The aim is to isolate the component of volatility attributable to continuous price changes from that caused by market microstructure effects or sudden price dislocations.
Methodology
In crypto asset analysis, two-scales realized volatility helps distinguish genuine price discovery from transient noise, offering a more robust estimate of underlying market risk. Quantitative traders and risk managers use this for improved option pricing, more accurate backtesting of strategies, and better risk budgeting, especially in markets characterized by rapid price shifts and varying liquidity depths.
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