Bias in the Mean Reversion Estimator in Continuous-Time Gaussian and Lévy Processes

Yong Bao, Aman Ullah, Yun Wang () and Jun Yu
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Yun Wang: School of International Trade and Economics, University of International Business and Economics

No 02-2013, Working Papers from Singapore Management University, School of Economics

Abstract: This paper develops the approximate finite-sample bias of the ordinary least squares or quasi max- imum likelihood estimator of the mean reversion parameter in continuous-time Levy processes. For the special case of Gaussian processes, our results reduce to those of Tang and Chen (2009) (when the long-run mean is unknown) and Yu (2012) (when the long-run mean is known). Simulations show that in general the approximate bias works well in capturing the true bias of the mean reversion estimator under difference scenarios. However, when the time span is small and the mean reversion parameter is approaching its lower bound, we nd it more difficult to approximate well the finite-sample bias.

JEL-codes: C10 C22 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-sea
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Citations: View citations in EconPapers (2)

Published in SMU Economics and Statistics Working Paper Series

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Working Paper: Bias in the Mean Reversion Estimator in Continuous-Time Gaussian and Levy Processes (2013)
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