Seeing the wood for the trees: A critical evaluation of methods to estimate the parameters of stochastic differential equations

Stan Hurn, J.Jeisman and K.A. Lindsay

Stan Hurn Discussion Papers from School of Economics and Finance, Queensland University of Technology

Abstract: Maximum likelihood (ML) estimates of the parameters of stochastic differential equations (SDEs) are consistent and asymptotically efficient, but unfortunately difficult to obtain if a closed form expression for the transitional density of the process is not available. As a result, a large number of competing estimation procedures have been proposed. This paper provides a critical evaluation of the various estimation techniques. Special attention is given to the ease of implementation and comparative performance of the procedures when estimating the parameters of the Cox-IngersollRoss and Ornstein-Uhlenbeck equations respectively.

Keywords: stochastic differential equations; parameter estimation; maximum likelihood; simulation; moments (search for similar items in EconPapers)
Date: 2006-06-15
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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Journal Article: Seeing the Wood for the Trees: A Critical Evaluation of Methods to Estimate the Parameters of Stochastic Differential Equations
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