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Simulated Moments Estimation of Markov Models of Asset Prices

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  • Duffie, Darrell
  • Singleton, Kenneth J

Abstract

This paper provides a simulated moments estimator of the parameters of dynamic models in which the state vector follows a time-homogeneous Markov process. Conditions are provided for both weak and strong consistency as well as asymptotic normality. Various trade-offs among the regularity conditions underlying the large sample properties of the simulated moments estimator are discussed in the context of an asset-pricing model. Geometric ergodicity of the underlying Markov process plays a central role in the analysis, ensuring that the simulated processes are asymptotically stationary with an ergodic distribution that is independent of starting values. Copyright 1993 by The Econometric Society.

Suggested Citation

  • Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, vol. 61(4), pages 929-952, July.
    • Handle: RePEc:ecm:emetrp:v:61:y:1993:i:4:p:929-52
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