A test for model specification of diffusion processes
AbstractWe propose a test for model specification of a parametric diffusion process based on a kernel estimation of the transitional density of the process. The empirical likelihood is used to formulate a statistic, for each kernel smoothing bandwidth, which is effectively a Studentized L2-distance between the kernel transitional density estimator and the parametric transitional density implied by the parametric process. To reduce the sensitivity of the test on smoothing bandwidth choice, the final test statistic is constructed by combining the empirical likelihood statistics over a set of smoothing bandwidths. To better capture the finite sample distribution of the test statistic and data dependence, the critical value of the test is obtained by a parametric bootstrap procedure. Properties of the test are evaluated asymptotically and numerically by simulation and by a real data example.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 11976.
Date of creation: Nov 2005
Date of revision: Feb 2007
Publication status: Published in Annals of Statistics 1.36(2008): pp. 162-198
Bootstrap; diffusion process; empirical likelihood; goodness-of-fit test; time series; transitional density;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
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