New model predicts extreme market fluctuations with unprecedented accuracy.
The article introduces the idea of volatility of volatility in continuous time, expanding traditional models to include extra randomness related to data variability. The researchers define this concept in two ways: non-parametrically, linking it to the variance process, and parametrically, introducing new models. They also present a method to estimate volatility of volatility using a novel estimator called pre-estimated spot variance based realized variance.