Simulation of multivariate diffusion bridges

Mogens Bladt (), Samuel Finch () and Michael Sørensen ()
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Mogens Bladt: Universidad Nacional Autónoma de México, Postal: Instituto de Investigacion en Matemáticas Aplicadas y en Sistemas, A.P. 20-726, 01000 Mexico, D.F., Mexico
Samuel Finch: University of Copenhagen, Dept. of Mathematical Sciences, Postal: University of Copenhagen, Dept. of Mathematical Sciences, Universitetsparken 5, DK-2100 Copenhagen, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We propose simple methods for multivariate diffusion bridge simulation, which plays a fundamental role in simulation-based likelihood and Bayesian inference for stochastic differential equations. By a novel application of classical coupling methods, the new approach generalizes a previously proposed simulation method for one-dimensional bridges to the multi-variate setting. First a method of simulating approximate, but often very accurate, diffusion bridges is proposed. These approximate bridges are used as proposal for easily implementable MCMC algorithms that produce exact diffusion bridges. The new method is much more generally applicable than previous methods. Another advantage is that the new method works well for diffusion bridges in long intervals because the computational complexity of the method is linear in the length of the interval. In a simulation study the new method performs well, and its usefulness is illustrated by an application to Bayesian estimation for the multivariate hyperbolic diffusion model.

Keywords: Bayesian inference; coupling; discretely sampled diffusions; likelihood inference; stochastic differential equation; time-reversal. (search for similar items in EconPapers)
JEL-codes: C15 C22 (search for similar items in EconPapers)
Pages: 29
Date: 2014-05-13
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Simulation of multivariate diffusion bridges (2016)
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