Truncated dynamics and estimation of diffusion equations

Darolles, Serge; Gouriéroux, Christian

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

Type

Article accepté pour publication ou publié

Date

2001-05

Journal name

Journal of Econometrics

Volume

102

Number

Publisher

Elsevier

Pages

1–22

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 / Keywords

Truncation; Diffusion process; Sieve method; Infinitesimal generator; High-frequency data; Extreme risks

JEL

C14 - Semiparametric and Nonparametric Methods: General
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
C40 - General