Simplified Estimating Functions for Diffusion Models with a High‐dimensional Parameter

We consider estimating functions for discretely observed diffusion processes of the following type: for one part of the parameter of interest we propose to use a simple and explicit estimating function of the type studied by Kessler (2000); for the remaining part of the parameter we use a martingale estimating function. Such an approach is particularly useful in practical applications when the parameter is high‐dimensional. It is also often necessary to supplement a simple estimating function by another type of estimating function because only the part of the parameter on which the invariant measure depends can be estimated by a simple estimating function. Under regularity conditions the resulting estimators are consistent and asymptotically normal. Several examples are considered in order to demonstrate the idea of the estimating procedure. The method is applied to two data sets comprising wind velocities and stock prices. In one example we also propose a general method for constructing diffusion models with a prescribed marginal distribution which have a flexible dependence structure.