The Grid Bootstrap for Continuous Time Models

Yiu Lim Lui, Weilin Xiao and Jun Yu

Journal of Business & Economic Statistics, 2022, vol. 40, issue 3, 1390-1402

Abstract: This article proposes the new grid bootstrap to construct confidence intervals (CI) for the persistence parameter in a class of continuous-time models. It is different from the standard grid bootstrap of Hansen in dealing with the initial condition. The asymptotic validity of the CI is discussed under the in-fill scheme. The modified grid bootstrap leads to uniform inferences on the persistence parameter. Its improvement over in-fill asymptotics is achieved by expanding the coefficient-based statistic around its in-fill asymptotic distribution that is non-pivotal and depends on the initial condition. Monte Carlo studies show that the modified grid bootstrap performs better than Hansen’s grid bootstrap. Empirical applications to the U.S. interest rates and volatilities suggest significant differences between the two bootstrap procedures when the initial condition is large.

Date: 2022
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Working Paper: The Grid Bootstrap for Continuous Time Models (2018)
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DOI: 10.1080/07350015.2021.1930014

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