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Full-Text Articles in Social and Behavioral Sciences
Quasi-Maximum Likelihood Estimation Of Multivariate Diffusions, Xiao Huang
Quasi-Maximum Likelihood Estimation Of Multivariate Diffusions, Xiao Huang
Faculty and Research Publications
This paper introduces quasi-maximum likelihood estimator for multivariate diffusions based on discrete observations. A numerical solution to the stochastic differential equation is obtained by higher order Wagner-Platen approximation and it is used to derive the first two conditional moments. Monte Carlo simulation shows that the proposed method has good finite sample property for both normal and non-normal diffusions. In an application of estimating stochastic volatility models, we find evidence of closeness between the CEV model and the GARCH stochastic volatility model. This finding supports the discrete time GARCH modeling of market volatility.
Quasi-Maximum Likelihood Estimation Of Discretely Observed Diffusions, Xiao Huang
Quasi-Maximum Likelihood Estimation Of Discretely Observed Diffusions, Xiao Huang
Faculty and Research Publications
This paper introduces a quasi-maximum likelihood estimator for discretely observed diffusions when a closed-form transition density is unavailable. Higher-order Wagner-Platen strong approximation is used to derive the first two conditional moments and a normal density function is used in estimation. Simulation study shows that the proposed estimator has high numerical precision and good numerical robustness. This method is applicable to a large class of diffusions.