Inference for Systems of Stochastic Differential Equations from Discretely Sampled data: A Numerical Maximum Likelihood Approach
Maximum likelihood estimation of discretely observed diffusion processes is mostly hampered by the lack of a closed form solution of the transient density. It has recently been argued that a most generic remedy to this problem is the numerical solution of the pertinent Fokker-Planck (FP) or forward Kol- mogorov equation. Here we expand extant work on univariate diffusions to higher dimensions. We find that in the bivariate and trivariate cases, a numerical solution of the FP equation via alternating direction finite difference schemes yields results surprisingly close to exact maximum likelihood in a number of test cases. After providing evidence for the effciency of such a numerical approach, we illustrate its application for the estimation of a joint system of short-run and medium run investor sentiment and asset price dynamics using German stock market data
|Date of creation:||Jul 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Kiellinie 66, D-24105 Kiel|
Phone: +49 431 8814-1
Fax: +49 431 85853
Web page: http://www.ifw-kiel.de
More information through EDIRC
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.:
- Thomas Lux, 2007.
"Rational Forecasts or Social Opinion Dynamics? Identification of Interaction Effects in a Business Climate Survey,"
wp07-11, Warwick Business School, Finance Group.
- Lux, Thomas, 2009. "Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 638-655, November.
- Thomas Lux, 2008. "Rational Forecasts or Social Opinion Dynamics? Identification of Interaction Effects in a Business Climate Survey," Kiel Working Papers 1424, Kiel Institute for the World Economy.
- Lux, Thomas, 2008. "Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey," Economics Working Papers 2008,07, Christian-Albrechts-University of Kiel, Department of Economics.
- Lux, Thomas, 2012. "Estimation of an agent-based model of investor sentiment formation in financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1284-1302.
- Thomas Lux, 2011. "Sentiment dynamics and stock returns: the case of the German stock market," Empirical Economics, Springer, vol. 41(3), pages 663-679, December.
- Creedy, John & Lye, Jenny & Martin, Vance L, 1996. "A Non-linear Model of the Real US-UK Exchange Rate," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 669-86, Nov.-Dec..
- Yacine Aït-Sahalia, 1999. "Transition Densities for Interest Rate and Other Nonlinear Diffusions," Journal of Finance, American Finance Association, vol. 54(4), pages 1361-1395, 08.
When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:1781. 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: (Dieter Stribny)The email address of this maintainer does not seem to be valid anymore. Please ask Dieter Stribny to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.