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Clustering of discretely observed diffusion processes

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  • De Gregorio, Alessandro
  • Maria Iacus, Stefano

Abstract

A new distance to classify time series is proposed. The underlying generating process is assumed to be a diffusion process solution to stochastic differential equations and observed at discrete times. The mesh of observations is not required to shrink to zero. The new dissimilarity measure is based on the L1 distance between the Markov operators estimated on two observed paths. Simulation experiments are used to analyze the performance of the proposed distance under several conditions including perturbation and misspecification. As an example, real financial data from NYSE/NASDAQ stocks are analyzed and evidence is provided that the new distance seems capable to catch differences in both the drift and diffusion coefficients better than other commonly used non-parametric distances. Corresponding software is available in the add-on package sde for the R statistical environment.

Suggested Citation

  • De Gregorio, Alessandro & Maria Iacus, Stefano, 2010. "Clustering of discretely observed diffusion processes," Computational Statistics & Data Analysis, Elsevier, vol. 54(2), pages 598-606, February.
  • Handle: RePEc:eee:csdana:v:54:y:2010:i:2:p:598-606
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    1. Hansen, Lars Peter & Alexandre Scheinkman, Jose & Touzi, Nizar, 1998. "Spectral methods for identifying scalar diffusions," Journal of Econometrics, Elsevier, vol. 86(1), pages 1-32, June.
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    7. Gobet, Emmanuel & Hoffmann, Marc & Reiß, Markus, 2002. "Nonparametric estimation of scalar diffusions based on low frequency data is ill-posed," SFB 373 Discussion Papers 2002,57, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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    1. repec:eee:insuma:v:79:y:2018:i:c:p:124-136 is not listed on IDEAS
    2. Stefano Maria Iacus & Giuseppe Porro, 2014. "Does European Monetary Union make inflation dynamics more uniform?," Applied Economics Letters, Taylor & Francis Journals, vol. 21(6), pages 391-396, April.

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