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Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations. Working paper #2

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Author Info
Stan Hurn
J.Jeisman
K.A. Lindsay (National Centre for Econometric Research)

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Abstract

Maximum-likelihood estimates of the parameters of stochastic differential equations are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed form expression for the transitional probability density function of the process is not available. As a result, a large number of competing estimation procedures have been proposed. This paper provides a critical evaluation of the various estimation techniques. Special attention is given to the ease of implementation and comparative performance of the procedures when estimating the parameters of the Cox-Ingersoll-Ross and Ornstein-Uhlenbeck equations respectively.

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Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 2.

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Date of creation: 15 Jul 2006
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Handle: RePEc:qut:auncer:2006-2

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Keywords: stochastic differential equations parameter estimation maximum likelihood simulation moments

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  10. Yacine Aït-Sahalia, 1999. "Transition Densities for Interest Rate and Other Nonlinear Diffusions," Journal of Finance, American Finance Association, vol. 54(4), pages 1361-1395, 08. [Downloadable!] (restricted)
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  15. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March. [Downloadable!] (restricted)
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  17. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De. [Downloadable!] (restricted)
    Other versions:
    • Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
    • Gourieroux, C. & Monfort, A & Renault, E., 1992. "Indirect Inference," Papers 9215, Institut National de la Statistique et des Etudes Economiques-.
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  22. Lars Peter Hansen & Jose Alexandre Scheinkman, 1993. "Back to the Future: Generating Moment Implications for Continuous-Time Markov Processes," NBER Technical Working Papers 0141, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
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