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Estimation of Equicorrelated Diffusions from Incomplete Data

Author

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  • Robert A. Jones

    () (Simon Fraser University)

  • Mohammad Zanganeh

    () (Simon Fraser University)

Abstract

The paper derives maximum likelihood parameter estimators for symmetrically correlated Weiner processes observed at discrete intervals. Such processes arise when pricing and determining Value-at-Risk for portfolio derivatives. Cases of driftless and mean-reverting state variables are considered. The procedure is applicable to samples with missing data of any pattern and to high dimensional systems. The estimation procedure is illustrated using a sample of stock prices.

Suggested Citation

  • Robert A. Jones & Mohammad Zanganeh, 2011. "Estimation of Equicorrelated Diffusions from Incomplete Data," Discussion Papers dp11-03, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp11-03
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    File URL: http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp11-03.pdf
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    References listed on IDEAS

    as
    1. Lo, Andrew W., 1988. "Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data," Econometric Theory, Cambridge University Press, vol. 4(02), pages 231-247, August.
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    More about this item

    Keywords

    Maximum likelihood; Equicorrelation; Correlated di usions; Wiener process; Missing data;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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