Maximum penalized quasi-likelihood estimation of the diffusion function
Statistical Finance
2011-01-12 v2
Abstract
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.
Cite
@article{arxiv.1008.2421,
title = {Maximum penalized quasi-likelihood estimation of the diffusion function},
author = {Jeff Hamrick and Yifei Huang and Constantinos Kardaras and Murad Taqqu},
journal= {arXiv preprint arXiv:1008.2421},
year = {2011}
}
Comments
17 pages, 4 figures, revised version