Approximated maximum likelihood estimation in multifractal random walks

Ola L{\o}vsletten and Martin Rypdal

Papers from arXiv.org

Abstract: We present an approximated maximum likelihood method for the multifractal random walk processes of [E. Bacry et al., Phys. Rev. E 64, 026103 (2001)]. The likelihood is computed using a Laplace approximation and a truncation in the dependency structure for the latent volatility. The procedure is implemented as a package in the R computer language. Its performance is tested on synthetic data and compared to an inference approach based on the generalized method of moments. The method is applied to estimate parameters for various financial stock indices.

Date: 2011-12, Revised 2012-02
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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