Semi-Nonparametric Estimation and Misspecification Testing of Diffusion Models

Dennis Kristensen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Novel transition-based misspeci?cation tests of semiparametric and fully parametric univariate diffusion models based on the estimators developed in Kristensen (Journal of Econometrics, 2010) are proposed. It is demonstrated that transition-based tests in general lack power in detecting local departures from the null since they integrate out local features of the drift and volatility. As a solution to this, tests that directly compare drift and volatility estimators under the relevant null and alternative are also developed which exhibit better power against local alternatives.

Keywords: Diffusion process; kernel estimation; nonparametric; speci?cation testing; semiparametric; transition density (search for similar items in EconPapers)
JEL-codes: C12 C13 C14 C22 (search for similar items in EconPapers)
Pages: 41
Date: 2010-08-01
New Economics Papers: this item is included in nep-ecm
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https://repec.econ.au.dk/repec/creates/rp/10/rp10_43.pdf (application/pdf)

Related works:
Journal Article: Semi-nonparametric estimation and misspecification testing of diffusion models (2011)
Working Paper: Semi-Nonparametric Estimation and Misspecification Testing of Diffusion Models (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-43

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