Parameter Estimation using Empirical Likelihood combined with Market Information
During the last decade Levy processes with jumps have received increasing popularity for modelling market behaviour for both derviative pricing and risk management purposes. Chan et al. (2009) introduced the use of empirical likelihood methods to estimate the parameters of various diffusion processes via their characteristic functions which are readily avaiable in most cases. Return series from the market are used for estimation. In addition to the return series, there are many derivatives actively traded in the market whose prices also contain information about parameters of the underlying process. This observation motivates us, in this paper, to combine the return series and the associated derivative prices observed at the market so as to provide a more reflective estimation with respect to the market movement and achieve a gain of effciency. The usual asymptotic properties, including consistency and asymptotic normality, are established under suitable regularity conditions. Simulation and case studies are performed to demonstrate the feasibility and effectiveness of the proposed method.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1201.2899. 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: (arXiv administrators)
If references are entirely missing, you can add them using this form.