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Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations

Hurn, Aubrey, Jeisman, Joseph, & Lindsay, Kenneth (2007) Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations. Journal of Financial Econometrics, 5(3), pp. 390-455.

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Abstract

Maximum-likelihood estimates of the parameters of stochastic differential equations are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed-form expression for the transitional probability density function of the process is not available. As a result, a large number of competing estimation procedures have been proposed. This article provides a critical evaluation of the various estimation techniques. Special attention is given to the ease of implementation and comparative performance of the procedures when estimating the parameters of the Cox–Ingersoll–Ross and Ornstein–Uhlenbeck equations respectively.

Impact and interest:

30 citations in Scopus
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25 citations in Web of Science®

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ID Code: 42857
Item Type: Journal Article
Keywords: Stochastic Differential Equations, Parameter Estimation, Maximum Likelihood, Simulation, Moments
DOI: 10.1093/jjfinec/nbm009
ISSN: 1479-8409
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Economic Models and Forecasting (140303)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Time-Series Analysis (140305)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Deposited On: 13 Jul 2011 23:07
Last Modified: 23 Sep 2013 16:32

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