Quasi-maximum Likelihood Estimation of Discretely Observed Diffusions

Abstract

This paper introduces quasi-maximum likelihood estimator for discretely observed diffusions when a closed-form transition density is unavailable. Higher order Wagner-Platen strong approximation is used to derive the first two conditional moments and a normal density function is used in estimation. Simulation study shows that the proposed estimator has high numerical precision and good numerical robustness. This method is applicable to a large class of diffusions.

Publication
The Econometrics Journal, vol. 14, pp. 241-256
Date