Semiparametric Estimation of Locally Stationary Diffusion Models

Bonsoo Koo and Oliver Linton

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: This paper proposes a class of locally stationary diffusion processes. The modelhas a time varying but locally linear drift and a volatility coefficient that is allowed tovary over time and space. We propose estimators of all the unknown quantitiesbased on long span data. Our estimation method makes use of the localstationarity. We establish asymptotic theory for the proposed estimators as thetime span increases. We apply this method to the real financial data to illustrate thevalidity of our model. Finally, we present a simulation study to provide the finitesampleperformance of the proposed estimators.

Keywords: diffusion processes; local stationarity; term structure dynamics; density matching; option pricing. (search for similar items in EconPapers)
JEL-codes: C14 C32 (search for similar items in EconPapers)
Date: 2010-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://sticerd.lse.ac.uk/dps/em/em551.pdf (application/pdf)

Related works:
Working Paper: Semiparametric estimation of locally stationary diffusion models (2010)
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: https://EconPapers.repec.org/RePEc:cep:stiecm:551

Access Statistics for this paper

More papers in STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE
Bibliographic data for series maintained by ().