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Diffusion Coefficient Estimation and Asset Pricing When Risk Premia and Sensitivities Are Time Varying1

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  • Marc Chesney
  • Robert J. Elliott
  • Dilip Madan
  • Hailiang Yang

Abstract

The exponential of a scalar diffusion is considered. Point estimates of the diffusion coefficient can be obtained by considering proportional increments of different powers of the exponential. an investigation of the minimum variance estimator gives unique optimal power.

Suggested Citation

  • Marc Chesney & Robert J. Elliott & Dilip Madan & Hailiang Yang, 1993. "Diffusion Coefficient Estimation and Asset Pricing When Risk Premia and Sensitivities Are Time Varying1," Mathematical Finance, Wiley Blackwell, vol. 3(2), pages 85-99, April.
    • Handle: RePEc:bla:mathfi:v:3:y:1993:i:2:p:85-99
    DOI: 10.1111/j.1467-9965.1993.tb00080.x
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    Cited by:

    1. Figa-Talamanca, Gianna & Guerra, Maria Letizia, 2006. "Fitting prices with a complete model," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 247-258, January.
    2. Kolkiewicz, A. W. & Tan, K. S., 2006. "Unit-Linked Life Insurance Contracts with Lapse Rates Dependent on Economic Factors," Annals of Actuarial Science, Cambridge University Press, vol. 1(1), pages 49-78, March.
    3. Ram Bhar & Carl Chiarella, 1995. "Estimating the Term Structure of Volatility in Futures Yield - A Maximum Likelihood Approach," Working Paper Series 56, Finance Discipline Group, UTS Business School, University of Technology, Sydney.

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