Semiparametric Estimation of Locally Stationary Diffusion Models
AbstractThis paper proposes a class of locally stationary diffusion processes. The modelhas a time varying but locally linear drift and a volatility coefficient that is allowed tovary over time and space. We propose estimators of all the unknown quantitiesbased on long span data. Our estimation method makes use of the localstationarity. We establish asymptotic theory for the proposed estimators as thetime span increases. We apply this method to the real financial data to illustrate thevalidity of our model. Finally, we present a simulation study to provide the finitesampleperformance of the proposed estimators.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2010/551.
Date of creation: Aug 2010
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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp
diffusion processes; local stationarity; term structure dynamics; density matching; option pricing.;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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