problem:I have two series of tick data with varying trade frequency. How to calculate the covariance in this case?Do you have any idea/solution?thanks.

check Yacine Ait-Sahalia website in Princeton for papers dealing with related issues.

thanks. I think, i got easier solution. It seems to work OK in my quick test with synchronized MC-data. Will check tomorrow with asyncronous one.The idea, briefly is:Calculate at each step EWMAverage and calculate at every tick the EW-COVariance, but also give additional weight due to time-distance between ticks:Suppose, x-tick has arrived and the last y-tick arrived N-seconds ago, so I have estimations:* <x>_(k-1) and <y>_(k-1) and cov(x,y)_(k-1), and * due to time distance between x_(k-1) and y_(k-1), I have additional weight W = exp(-alfa*N)I know, there is normalisation problem (due to W) - I will try to account for that (maybe someone has any idea how?)What do you think?

You might try the variogram. It is used commonly in geostatistics apparantly but I don't know much about it. http://globec.whoi.edu/software/kriging ... lish.htmlI am also trying to find correlation between irregularly spaced series.. I've just been using an EWMA on both series and using last-point interpolation to make the 2 series spaced on the same data points ( but still irregular), and this seems to work, but I might be missing something here..--StephenQuoteOriginally posted by: nikolproblem:I have two series of tick data with varying trade frequency. How to calculate the covariance in this case?Do you have any thanks.

the main point to get correct covariance matrix is to have correct normalization and to preserve unity of the corr-matrix...in principle one try to get estimation E[ x * y ], where x and y are mean-shifted and the space how you weight depends on your taste. if you do all correct, then |Corr(x,y)|=1thanks for paper.

hi nikol,i have tried your suggestion but cannot get the mean shifted series to have a correlation of 1. how do you choose your alfa in your weighting?regards

hi nikol,i have tried your suggestion but cannot get the mean shifted series to have a correlation of 1. how do you choose your alfa in your weighting?regards

Here is an interesting approach to that problem in the context of multivariable Brownian motion and more generally diffusions.http://www.stats.uwaterloo.ca/stats_nav ... 006-12.pdf