Stabsseminar ved Bent J. Christensen

Professor Bent J. Christensen, Aarhus Universitet, holder stabsseminar ved Institutt for foretaksøkonomi fredag 2. mars.

28.02.2001 - Elin F. Styve

Tema er Optimal Inference for Diffusion Processes, With Applications to the Short Rate of Interest

Tid og sted:
Fredag 2. mars kl. 1215-1330 i Karl Borchs aud.

Abstract
Improved estimation methods for discretely observed diffusion models of the short rate of interest are introduced. We consider both optimal martingale estimating equations and maximum likelihood methods based on second order convergent numerical solution of the forward partial differential equation for the transition density. The methods are compared to wellknown methods, namely the Generalized Method of Moments, Indirect Inference and Gaussian Quasi Maximum Likelihood, both theoretically, in an application to U.S. data, and in Monte Carlo experiments. The benchmark model used for illustration and comparison is the Chan, Karolyi, Longstaff & Sanders (1992) meanreverting constant elasticity of variance short rate model. The new martingale and likelihood methods reduce bias, true standard errors, and bias in estimated standard errors, relative to the established methods, in particular for the key parameter of interest, the elasticity of variance. In weekly data from 1982 to 1995, the new methods estimate this parameter to about .78, with an associated standard error of .07.
Finally, we use the maximum likelihood method to estimate non-linear drift short rate models. We find the terms commonly suggested as drift augmentations insignificant.

Paper kan hentes fra instituttets hjemmeside på Internett: www.nhh.no/for/seminars/2001-spring/020301.pdf.

Kontaktpersoner:
Knut K. Aase (9249)
Hans K. Hvide (9283)