Estimation of Diffusions using Wavelet scaling methods

Esben Hoeg
Authors registered in the RePEc Author Service: Esben Høg ()

No 255, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: In continuous time, diffusion processes have been used for modelling financial dynamics for a long time. For example the Ornstein-Uhlenbeck process (the simplest mean-reverting process)has been used to model non-speculative price processes. The Cox-Ingersoll-Ross process is widely used to model interest rate dynamics. We discuss parameter estimation of these processes using a new method, namely a Wavelet filter method. This approach is useful as it turns out that the resulting covariance function is decorrelated. We use Monte Carlo simulation to report the distribution of estimates.

Keywords: Ornstein-Uhlenbeck process; CIR model; Wavelet transform (search for similar items in EconPapers)
JEL-codes: C0 C4 G0 (search for similar items in EconPapers)
Date: 2001-04-01
New Economics Papers: this item is included in nep-ets
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