MLE for partially observed diffusions: direct maximization vs. the em algorithm

Fabien Campillo and François Le Gland

Stochastic Processes and their Applications, 1989, vol. 33, issue 2, 245-274

Abstract: Two algorithms are compared for maximizing the likelihood function associated with parameter estimation in partially observed diffusion processes: - - the EM algorithm, investigated by Dembo and Zeitouni (1986), an iterative algorithm where, at each iteration, an auxiliary function is computed and maximized; - - the direct approach where the likelihood function itself is computed and maximized. This yields to a comparison of nonlinear smoothing and nonlinear filtering for computing a class of conditional expectations related to the problem of estimation. In particular, it is shown that smoothing is indeed necessary for the EM algorithm approach to be efficient. Time discretization schemes for the stochastic PDE's involved in the algorithms are given, and the link with the discrete time case (hidden Markov model) is explored. Numerical results are presented with the conclusion that direct maximization should be preferred whenever some noise covariances associated with the parameters to be estimated are small.

Keywords: parameter; estimation; maximum; likelihood; EM; algorithm; diffusion; processes; nonlinear; filtering; nonlinear; smoothing; Skorokhod; integral; time; discretization (search for similar items in EconPapers)
Date: 1989
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