EDGEWORTH EXPANSION FOR THE DISTRIBUTION OF THE MAXIMUM LIKELIHOOD ESTIMATE IN THE VASICEK MODEL

Qinwen Zhu, Hui Liu and Chengfeng Sun
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Qinwen Zhu: Institute of Mathematics, School of Mathematical Sciences, Nanjing Normal University, Nanjing 210023, P. R. China
Hui Liu: #x2020;School of Mathematical Sciences, Qufu Normal University, Qufu, Shandong 273165, P. R. China
Chengfeng Sun: #x2021;Department of Applied Mathematics, Nanjing University of Finance and Economics, Nanjing 210023, P. R. China

Annals of Financial Economics (AFE), 2019, vol. 14, issue 01, 1-26

Abstract: The Edgeworth expansion of the log-likelihood ratio by the maximum likelihood method in the Vasicek model is studied in this paper. Our method provides an improvement on the accuracy of reverting speed estimation under finite time data. The error bound is also provided. The Edgeworth expansion for the distribution is helping with this improvement. Hence, the reverting speed of interest rates can achieve a better simulation result based on such modifications.

Keywords: Vasicek model; likelihood ratio; parameter estimation; Edgeworth expansion; mean-reversion speed; maximum likelihood estimation (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S2010495219500027

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