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Computationally Attractive Stability Tests for the Efficient Method of Moments

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Author Info
Pieter J. van der Sluis (University of Amsterdam)

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Abstract

Estimation using simulation techniques may be very time consuming. Specification tests for structural stability often require more than one of such computationally demanding estimators. Typically one for the sample, one for the post-sample and one for the combination of sample and post-sample is required. This paper describes structural stability tests for use with the Efficient Method of Moments technique. Computationally attractive post-sample estimators and test-statistics for structural stability are proposed. These computationally attractive test-statistics are modifications of the Lagrange Multiplier, Likelihood Ratio and Wald tests for structural stability and of the Hansen-type test statistics for structural stability. The modification ensures the same asymptotic optimality properties against certain local alternatives as those based on efficient computationally intensive estimators for the post-sample. However no time consuming estimators are needed for the post-sample and for the combination of sample and post- sample. Evaluation of these tests has been performed in the context of a stochastic volatility model for the S&P500.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 97-087/4.

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Date of creation: 05 Sep 1997
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Handle: RePEc:dgr:uvatin:19970087

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. George J. Jiang & Pieter J. van der Sluis, 1998. "Pricing Stock Options under Stochastic Volatility and Stochastic Interest Rates with Efficient Method of Moments Estimation," Tinbergen Institute Discussion Papers 98-067/4, Tinbergen Institute. [Downloadable!]
  2. Peter N Smith & Michael R Wickens, . "Asset Pricing with Observable Stochastic Discount Factors," Discussion Papers 02/03, Department of Economics, University of York. [Downloadable!]
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  3. Carmen Broto & Esther Ruiz, 2002. "Estimation Methods For Stochastic Volatility Models: A Survey," Statistics and Econometrics Working Papers ws025414, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
    Other versions:
  4. Pieter J. van der Sluis, 1997. "Post-Sample Prediction Tests for the Efficient Method of Moments," Tinbergen Institute Discussion Papers 97-054/4, Tinbergen Institute. [Downloadable!]
  5. Pieter J. van der Sluis, 1998. "EmmPack 1.01: C/C++ Code for Use with Ox for Estimation of Univariate Stochastic Volatility Models with the Efficient Method of Moments," Tinbergen Institute Discussion Papers 98-021/4, Tinbergen Institute. [Downloadable!]
  6. Pieter J. van der Sluis, 1998. "Structural Stability Tests with Unknown Breakpoint for the Efficient Method of Moments with Application to Stochastic Volatility Models," Tinbergen Institute Discussion Papers 98-055/4, Tinbergen Institute. [Downloadable!]
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