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Self-Weighted Quantile Estimation for Drift Coefficients of Ornstein–Uhlenbeck Processes with Jumps and Its Application to Statistical Arbitrage

Author

Listed:
  • Yuping Song

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Ruiqiu Chen

    (Institute of Applied Economics, Shanghai Academy of Social Sciences, Shanghai 200020, China)

  • Chunchun Cai

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Yuetong Zhang

    (School of Mathematics, Shandong University, Jinan 250100, China)

  • Min Zhu

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

Abstract

The estimation of drift parameters in the Ornstein–Uhlenbeck (O-U) process with jumps primarily employs methods such as maximum likelihood estimation, least squares estimation, and least absolute deviation estimation. These methods generally assume specific error distributions and finite variances. However, with the increasing uncertainty in financial markets, asset prices exhibit characteristics such as skewness and heavy tails, which lead to biases in traditional estimators. This paper proposes a self-weighted quantile estimator for the drift parameters of the O-U process with jumps and verifies its asymptotic normality under large samples, given certain assumptions. Furthermore, through Monte Carlo simulations, the proposed self-weighted quantile estimator is compared with least squares, quantile, and power variation estimators. The estimation performance is evaluated using metrics such as mean, standard deviation, and mean squared error (MSE). The simulation results show that the self-weighted quantile estimator proposed in this paper performs well across different metrics, such as 8.21% and 8.15% reduction of MSE at the 0.9 quantile for drift parameter γ and κ compared with the traditional quantile estimator. Finally, the proposed estimator is applied to inter-period statistical arbitrage of the CSI 300 Index Futures. The backtesting results indicate that the self-weighted quantile method proposed in this paper performs well in empirical applications.

Suggested Citation

  • Yuping Song & Ruiqiu Chen & Chunchun Cai & Yuetong Zhang & Min Zhu, 2025. "Self-Weighted Quantile Estimation for Drift Coefficients of Ornstein–Uhlenbeck Processes with Jumps and Its Application to Statistical Arbitrage," Mathematics, MDPI, vol. 13(9), pages 1-31, April.
  • Handle: RePEc:gam:jmathe:v:13:y:2025:i:9:p:1399-:d:1641902
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    References listed on IDEAS

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