Truncated dynamics and estimation of diffusion equations

Serge Darolles () and Christian Gourieroux
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Serge Darolles: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Christian Gourieroux: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: We study inference on continuous-time processes from discrete data with a given time interval between consecutive observations, and propose a modification of the sieve estimation method based on the infinitesimal generator. Our approach consists on truncating the initial process to improve the estimation of the eigenfunctions at the boundaries of the set of admissible values. For diffusion processes, nonparametric estimation of the drift and volatility are derived. A prior truncation is also useful to eliminate in practice the specific dynamics of extreme risks.

Keywords: Truncation; Diffusion process; Sieve method; Infinitesimal generator; High-frequency data; Extreme risks (search for similar items in EconPapers)
Date: 2000-06-01
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Published in Econometrics, 2000, 102 (1), pp.1-22. ⟨10.1016/S0304-4076(00)00085-3⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00678232

DOI: 10.1016/S0304-4076(00)00085-3

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