Parameter estimation from multinomial trees to jump diffusions with k means clustering

Kiseop Lee and Mingxin Xu

MPRA Paper from University Library of Munich, Germany

Abstract: Ever since the pioneering work of Cox, Ross and Rubinstein, tree models have been popular among asset pricing methods. On the other hand, statistical estimation of parameters of tree models has not been studied as much. In this paper, we use K Means Clustering method to estimate the parameters of multinomial trees. By the weak convergence property of multinomial trees to continuous-time models, we show that this method can be in turn used to estimate parameters in continuous time models, illustrated by an example of jump-diffusion model.

Keywords: parameter estimation; multinomial tree; jump model; weak convergence; K means clustering (search for similar items in EconPapers)
JEL-codes: C10 G10 (search for similar items in EconPapers)
Date: 2007-04-26, Revised 2007-04-26
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:3307

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