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Maximum penalized quasi-likelihood estimation of the diffusion function

Listed author(s):
  • Jeff Hamrick
  • Yifei Huang
  • Constantinos Kardaras
  • Murad Taqqu
Registered author(s):

    We develop a maximum penalized quasi-likelihood estimator for estimating in a nonparametric way the diffusion function of a diffusion process, as an alternative to more traditional kernel-based estimators. After developing a numerical scheme for computing the maximizer of the penalized maximum quasi-likelihood function, we study the asymptotic properties of our estimator by way of simulation. Under the assumption that overnight London Interbank Offered Rates (LIBOR); the USD/EUR, USD/GBP, JPY/USD, and EUR/USD nominal exchange rates; and 1-month, 3-month, and 30-year Treasury bond yields are generated by diffusion processes, we use our numerical scheme to estimate the diffusion function.

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    Paper provided by in its series Papers with number 1008.2421.

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    Date of creation: Aug 2010
    Date of revision: Jan 2011
    Handle: RePEc:arx:papers:1008.2421
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