Truncated dynamics and estimation of diffusion equations
Darolles, Serge; Gouriéroux, Christian (2001), Truncated dynamics and estimation of diffusion equations, Journal of Econometrics, 102, 1, p. 1–22. http://dx.doi.org/10.1016/S0304-4076(00)00085-3
TypeArticle accepté pour publication ou publié
Journal nameJournal of Econometrics
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Abstract (EN)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 estimationof the eigenfunctions at the boundaries of the set of admissible values. For diffusion processes, nonparametric estimationof the drift and volatility are derived. A prior truncation is also useful to eliminate in practice the specific dynamicsof extreme risks.
Subjects / KeywordsTruncation; Diffusion process; Sieve method; Infinitesimal generator; High-frequency data; Extreme risks
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