Economics at your fingertips  

‘Purposely misspecified’ posterior inference on the volatility of a jump diffusion process

Ryan Martin, Cheng Ouyang and Francois Domagni

Statistics & Probability Letters, 2018, vol. 134, issue C, 106-113

Abstract: Bayesian analysis requires prior distributions for all model parameters, whether of interest or not. This can be a burden, for a number of reasons, especially when the nuisance parameters are high- or infinite-dimensional, so there is motivation to find a way around this without completely abandoning the Bayesian approach. Here we consider a general strategy of working with a purposely misspecified model to avoid dealing directly with nuisance parameters. We focus this investigation on an interesting and challenging problem of inference on the volatility of a jump diffusion process based on discrete observations. If we simply ignore the jumps, we can work out precisely the asymptotic behavior of the Bayesian posterior distribution based on the misspecified model. This result suggests some simple adjustments to correct for the effects of misspecification, and we demonstrate that a suitably corrected version of our purposely misspecified posterior leads to inference on the volatility that is asymptotically optimal.

Keywords: Bernstein–von Mises theorem; Cramér–Rao lower bound; Credible interval; Gibbs posterior; Uncertainty quantification (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Statistics & Probability Letters is currently edited by Somnath Datta and Hira L. Koul

More articles in Statistics & Probability Letters from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-05-19
Handle: RePEc:eee:stapro:v:134:y:2018:i:c:p:106-113