Truncated dynamics and estimation of diffusion equations

Citation
S. Darolles et C. Gourieroux, Truncated dynamics and estimation of diffusion equations, J ECONOMET, 102(1), 2001, pp. 1-22
Citations number
16
Categorie Soggetti
Economics
Journal title
JOURNAL OF ECONOMETRICS
ISSN journal
03044076 → ACNP
Volume
102
Issue
1
Year of publication
2001
Pages
1 - 22
Database
ISI
SICI code
0304-4076(200105)102:1<1:TDAEOD>2.0.ZU;2-G
Abstract
We study inference on continuous-time processes from discrete data with a g iven time interval between consecutive observations, and propose a modifica tion of the sieve estimation method based on the infinitesimal generator. O ur approach consists on truncating the initial process to improve the estim ation of the eigenfunctions at the boundaries of the set of admissible valu es. For diffusion processes, nonparametric estimation of the drift and vola tility are derived. A prior truncation is also useful to eliminate in pract ice the specific dynamics of extreme risks. (C) 2001 Published by Elsevier Science S.A.