Cover Image
QR Code

Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations.

Maximum-likelihood estimates of the parameters of stochastic differential equations are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed-form expression for the transitional probability density function of the process is not available. As a result, a large n...

Full description

Published in:Journal of Financial Econometrics Vol. 5; no. 3; pp. 390 - 456
Main Authors: Hurn, A. S., Jeisman, J. I., Lindsay, K. A.
Format: Article
Published: Oxford University Press / UK Summer 2007
Subjects:
Stochastic processes
Differential equations
Parameter estimation
Online Access:View this record in EBSCOhost
Summary:Maximum-likelihood estimates of the parameters of stochastic differential equations are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed-form expression for the transitional probability density function of the process is not available. As a result, a large number of competing estimation procedures have been proposed. This article provides a critical evaluation of the various estimation techniques. Special attention is given to the ease of implementation and comparative performance of the procedures when estimating the parameters of the Cox-Ingersoll-Ross and Ornstein-Uhlenbeck equations respectively. Reprinted by permission of the publisher.