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Estimating and Testing Continuous-Time Models in Finance: The Role of Transition Densities

Author

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  • Yacine Aït-Sahalia

    (Department of Economics and Bendheim Center for Finance, Princeton University, Princeton, New Jersey 08540)

Abstract

This article surveys recent developments to estimate and test continuous-time models in finance using discrete observations on the underlying asset price or derivative securities' prices. Both parametric and nonparametric methods are described. All these methods share a common focus on the transition density as the central object for inference and testing of the model.

Suggested Citation

  • Yacine Aït-Sahalia, 2009. "Estimating and Testing Continuous-Time Models in Finance: The Role of Transition Densities," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 341-359, November.
    • Handle: RePEc:anr:refeco:v:1:y:2009:p:341-359
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.financial.050808.114424
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    More about this item

    Keywords

    maximum-likelihood; diffusions; jumps; Markov processes;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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