The contribution of this paper is two-fold. First we show how to estimate the volatility of high frequency log-returns where the estimates are not a affected by microstructure noise and the presence of Lévy-type jumps in prices. The second contribution focuses on the relationship between the...

An interconnector is an asset that gives the owner the option to transmit electricity between two locations. In financial terms, the value of an interconnector is the same as a strip of real options written on the spread between power prices in two markets. We model the spread based on a:...