Estimating the diffusion coefficient function for a diversified world stock index

Katja Ignatieva and Eckhard Platen ()

Computational Statistics & Data Analysis, 2012, vol. 56, issue 6, 1333-1349

Abstract: This paper deals with the estimation of continuous-time diffusion processes which model the dynamics of a well diversified world stock index (WSI). We use the nonparametric kernel-based estimation to empirically identify a square root type diffusion coefficient function in the dynamics of the discounted WSI. A square root process turns out to be an excellent building block for a parsimonious model for the WSI. Its dynamics allow capturing various empirical stylized facts and long term properties of the index, as well as, the explicit computation of various financial quantities.

Keywords: Diffusion coefficient function; Diversified world stock index; Square root process; Nonparametric estimation; Kernel density (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:56:y:2012:i:6:p:1333-1349

DOI: 10.1016/j.csda.2011.10.004

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