Nonparametric Estimation of the Diffusion Coefficient via Fourier Analysis, with Aplication to Short Rate Modeling
AbstractIn this paper a new fully nonparametric estimator of the diffusion coefficient is introduced, based on Fourier analysis of the observed trajectory. The proposed estimator is proved to be consistent and asymptotically normally distributed. After testing the estimator on Monte Carlo simulations, we use it to estimate an univariate model of the short rate with available interest rate data. Data analysis helps shedding new light on the functional form of the diffusion coefficient.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 440.
Date of creation: Nov 2004
Date of revision:
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-ECM-2005-01-23 (Econometrics)
- NEP-MAC-2005-01-23 (Macroeconomics)
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