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Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations

  • A. S. Hurn
  • J. I. Jeisman
  • K. A. Lindsay

Maximum-likelihood estimates of the parameters of stochastic differential equations are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed-form expression for the transitional probability density function of the process is not available. As a result, a large number of competing estimation procedures have been proposed. This article provides a critical evaluation of the various estimation techniques. Special attention is given to the ease of implementation and comparative performance of the procedures when estimating the parameters of the Cox-Ingersoll-Ross and Ornstein-Uhlenbeck equations respectively. Copyright , Oxford University Press.

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Article provided by Society for Financial Econometrics in its journal Journal of Financial Econometrics.

Volume (Year): 5 ()
Issue (Month): 3 ()
Pages: 390-455

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Handle: RePEc:oup:jfinec:v:5:y::i:3:p:390-455
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