The roughness exponent and its model-free estimation (2111.10301v6)

Abstract: Motivated by pathwise stochastic calculus, we say that a continuous real-valued function $x$ admits the roughness exponent $R$ if the $p^{\text{th}}$ variation of $x$ converges to zero if $p>1/R$ and to infinity if $p<1/R$. For the sample paths of many stochastic processes, such as fractional Brownian motion, the roughness exponent exists and equals the standard Hurst parameter. In our main result, we provide a mild condition on the Faber--Schauder coefficients of $x$ under which the roughness exponent exists and is given as the limit of the classical Gladyshev estimates $\widehat R_n(x)$. This result can be viewed as a strong consistency result for the Gladyshev estimators in an entirely model-free setting, because it works strictly trajectory-wise and requires no probabilistic assumptions. Nonetheless, our proof is probabilistic and relies on a martingale that is hidden in the Faber--Schauder expansion of $x$. Since the Gladyshev estimators are not scale-invariant, we construct several scale-invariant estimators that are derived from the sequence $(\widehat R_n)_{n\in\mathbb N}$. We also discuss how a dynamic change in the roughness parameter of a time series can be detected. Finally, we extend our results to the case in which the $p^{\text{th}}$ variation of $x$ is defined over a sequence of unequally spaced partitions. Our results are illustrated by means of high-frequency financial time series.