Constrained Polynomial Likelihood

Caio Almeida and Paul Schneider
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Caio Almeida: Princeton University
Paul Schneider: University of Lugano

Working Papers from Princeton University. Economics Department.

Abstract: We develop a non-negative polynomial minimum-norm likelihood ratio (PLR) of two distributions of which only moments are known under shape restrictions. The PLR converges to the true, unknown, likelihood ratio. We show consistency, obtain the asymptotic distribution for the PLR coefficients estimated with sample moments, and present two applications. The first develops a PLR for the unknown transition density of a jump-diffusion process. The second modifies the Hansen-Jagannathan pricing kernel framework to accommodate polynomial return models consistent with no-arbitrage while simultaneously nesting the linear return model.

Keywords: Likelihood ratio; positive polynomial; Reproducing Kernel Hilbert Space (RKHS) (search for similar items in EconPapers)
JEL-codes: C13 C51 C61 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-ecm and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-45

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