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Testing the Parametric Specification of the Diffusion Function in a Diffusion Process

Fuchun Li

Staff Working Papers from Bank of Canada

Abstract: A new consistent test is proposed for the parametric specification of the diffusion function in a diffusion process without any restrictions on the functional form of the drift function. The data are assumed to be sampled discretely in a time interval that can be fixed or lengthened to infinity. The test statistic is shown to follow an asymptotic normal distribution under the null hypothesis that the parametric diffusion function is correctly specified. Monte Carlo simulations are conducted to examine the finite-sample performance of the test, revealing that the test has good size and power.

Keywords: Econometric and statistical methods; Interest rates (search for similar items in EconPapers)
JEL-codes: C12 C14 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2005
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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Related works:
Journal Article: TESTING THE PARAMETRIC SPECIFICATION OF THE DIFFUSION FUNCTION IN A DIFFUSION PROCESS (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:05-35

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