 Threshold estimation of Markov models with jumps and interest rate modelingCecilia Mancini and Roberto Renò Journal of Econometrics, 2011, vol. 160, issue 1, 77-92 Abstract: We reconstruct the level-dependent diffusion coefficient of a univariate semimartingale with jumps which is observed discretely. The consistency and asymptotic normality of our estimator are provided in the presence of both finite and infinite activity (finite variation) jumps. Our results rely on kernel estimation, using the properties of the local time of the data generating process, and the fact that it is possible to disentangle the discontinuous part of the state variable through those squared increments between observations not exceeding a suitable threshold function. We also reconstruct the drift and the jump intensity coefficients when they are level-dependent and jumps have finite activity, through consistent and asymptotically normal estimators. Simulated experiments show that the newly proposed estimators perform better in finite samples than alternative estimators, and this allows us to reexamine the estimation of a univariate model for the short term interest rate, for which we find fewer jumps and more variance due to the diffusion part than previous studies. Date: 2011 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:160:y:2011:i:1:p:77-92 Access Statistics for this article Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson More articles in Journal of Econometrics from Elsevier |
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