BIAS REDUCTION IN NONPARAMETRIC DIFFUSION COEFFICIENT ESTIMATION

Jo o Nicolau

Econometric Theory, 2003, vol. 19, issue 05, pages 754-777

Abstract: In this paper, we quantify the asymptotic bias of the Florens-Zmirou (1993, Journal of Applied Probability 30, 790 804) and Jiang and Knight (1997, Econometric Theory 13, 615 645) estimator for the diffusion coefficient when the step of discretization is fixed, and then we propose a bias adjustment that partially compensates for the distortion. Also, we show that our estimators have all the asymptotic properties of the Florens-Zmirou and Jiang and Knight estimator when the step of discretization goes to zero. We provide some examples.I thank the editor Peter C.B. Phillips and the two referees for comments and suggestions that led to considerable improvement of the paper. I am also grateful to Carlos Braumann and Tom Kundert for helpful comments. This research was supported by the Funda o para a Ci ncia e a Tecnologia (FCT) and by POCTI.

Date: 2003
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