Aggregation of Nonparametric Estimators for Volatility Matrix
An aggregated method of nonparametric estimators based on time-domain and state-domain estimators is proposed and studied. To attenuate the curse of dimensionality, we propose a factor modeling strategy. We first investigate the asymptotic behavior of nonparametric estimators of the volatility matrix in the time domain and in the state domain. Asymptotic normality is separately established for nonparametric estimators in the time domain and state domain. These two estimators are asymptotically independent. Hence, they can be combined, through a dynamic weighting scheme, to improve the efficiency of volatility matrix estimation. The optimal dynamic weights are derived, and it is shown that the aggregated estimator uniformly dominates volatility matrix estimators using time-domain or state-domain smoothing alone. A simulation study, based on an essentially affine model for the term structure, is conducted, and it demonstrates convincingly that the newly proposed procedure outperforms both time- and state-domain estimators. Empirical studies further endorse the advantages of our aggregated method. Copyright , Oxford University Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 5 ()
Issue (Month): 3 ()
|Contact details of provider:|| Postal: |
Fax: 01865 267 985
Web page: http://jfec.oxfordjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arnak Dalalyan & Yury Kutoyants, 2003. "Asymptotically Efficient Estimation of the Derivative of the Invariant Density," Statistical Inference for Stochastic Processes, Springer, vol. 6(1), pages 89-107, January.
- Wolfgang Hardle & Helmut Herwartz & Vladimir Spokoiny, 2003.
"Time Inhomogeneous Multiple Volatility Modeling,"
Journal of Financial Econometrics,
Society for Financial Econometrics, vol. 1(1), pages 55-95.
- Härdle, Wolfgang & Herwartz, Helmut & Spokoiny, Vladimir G., 2001. "Time inhomogeneous multiple volatility modelling," SFB 373 Discussion Papers 2001,7, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Wolfgang Haerdle & Helmut Herwartz & Volodia Spokoiny, 2000. "Time Inhomogeneous Multiple Volatility Modelling," Econometric Society World Congress 2000 Contributed Papers 1429, Econometric Society.
- Yacine Ait--Sahalia & Per A. Mykland, 2003.
"The Effects of Random and Discrete Sampling when Estimating Continuous--Time Diffusions,"
Econometric Society, vol. 71(2), pages 483-549, March.
- Yacine Ait-Sahalia & Per A. Mykland, 2002. "The Effects of Random and Discrete Sampling When Estimating Continuous-Time Diffusions," NBER Technical Working Papers 0276, National Bureau of Economic Research, Inc.
- Fan J. & Zhang C., 2003. "A Reexamination of Diffusion Estimators With Applications to Financial Model Validation," Journal of the American Statistical Association, American Statistical Association, vol. 98, pages 118-134, January.
- Dean P. Foster & Daniel B. Nelson, 1994.
"Continuous Record Asymptotics for Rolling Sample Variance Estimators,"
NBER Technical Working Papers
0163, National Bureau of Economic Research, Inc.
- Foster, Dean P & Nelson, Daniel B, 1996. "Continuous Record Asymptotics for Rolling Sample Variance Estimators," Econometrica, Econometric Society, vol. 64(1), pages 139-74, January.
- 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.
- Ledoit, Olivier & Wolf, Michael, 2003.
"Improved estimation of the covariance matrix of stock returns with an application to portfolio selection,"
Journal of Empirical Finance,
Elsevier, vol. 10(5), pages 603-621, December.
- Olivier Ledoit & Michael Wolf, 2001. "Improved estimation of the covariance matrix of stock returns with an application to portofolio selection," Economics Working Papers 586, Department of Economics and Business, Universitat Pompeu Fabra.
- Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, 02.
- Jiang, George J. & Knight, John L., 1997. "A Nonparametric Approach to the Estimation of Diffusion Processes, With an Application to a Short-Term Interest Rate Model," Econometric Theory, Cambridge University Press, vol. 13(05), pages 615-645, October.
- Stanton, Richard, 1997. " A Nonparametric Model of Term Structure Dynamics and the Market Price of Interest Rate Risk," Journal of Finance, American Finance Association, vol. 52(5), pages 1973-2002, December.
- Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
- Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
- 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.
- 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.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
- Chen, Song Xi & Gao, Jiti & Tang, Chenghong, 2005. "A test for model specification of diffusion processes," MPRA Paper 11976, University Library of Munich, Germany, revised Feb 2007.
- Cheridito, Patrick & Filipovic, Damir & Kimmel, Robert L., 2007. "Market price of risk specifications for affine models: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 83(1), pages 123-170, January.
- Federico M. Bandi & Peter C. B. Phillips, 2003.
"Fully Nonparametric Estimation of Scalar Diffusion Models,"
Econometric Society, vol. 71(1), pages 241-283, January.
- Federico M. Bandi & Peter C.B. Phillips, 2001. "Fully Nonparametric Estimation of Scalar Diffusion Models," Cowles Foundation Discussion Papers 1332, Cowles Foundation for Research in Economics, Yale University.
- Robert F. Engle & Victor Ng & Michael Rothschild, 1988.
"Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills,"
NBER Technical Working Papers
0065, National Bureau of Economic Research, Inc.
- Engle, Robert F. & Ng, Victor K. & Rothschild, Michael, 1990. "Asset pricing with a factor-arch covariance structure : Empirical estimates for treasury bills," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 213-237.
- Yacine Ait-Sahalia, 1995.
"Nonparametric Pricing of Interest Rate Derivative Securities,"
NBER Working Papers
5345, National Bureau of Economic Research, Inc.
- Ait-Sahalia, Yacine, 1996. "Nonparametric Pricing of Interest Rate Derivative Securities," Econometrica, Econometric Society, vol. 64(3), pages 527-60, May.
- Hansen, Lars Peter & Scheinkman, Jose Alexandre, 1995.
"Back to the Future: Generating Moment Implications for Continuous-Time Markov Processes,"
Econometric Society, vol. 63(4), pages 767-804, July.
- 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.
- Bandi, Federico & Moloche, Guillermo, 2008. "On the functional estimation of multivariate diffusion processes," MPRA Paper 43681, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:5:y::i:3:p:321-357. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.