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Estimation of Equicorrelated Diffusions from Incomplete Data

Author

Listed:
  • Robert A. Jones

    (Simon Fraser University)

  • Mohammad Zanganeh

    (Simon Fraser University)

Abstract

The paper derives maximum likelihood parameter estimators for symmetrically correlated Weiner processes observed at discrete intervals. Such processes arise when pricing and determining Value-at-Risk for portfolio derivatives. Cases of driftless and mean-reverting state variables are considered. The procedure is applicable to samples with missing data of any pattern and to high dimensional systems. The estimation procedure is illustrated using a sample of stock prices.

Suggested Citation

  • Robert A. Jones & Mohammad Zanganeh, 2011. "Estimation of Equicorrelated Diffusions from Incomplete Data," Discussion Papers dp11-03, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp11-03
    as

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    File URL: http://www.sfu.ca/repec-econ/sfu/sfudps/dp11-03.pdf
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    References listed on IDEAS

    as
    1. Lo, Andrew W., 1988. "Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data," Econometric Theory, Cambridge University Press, vol. 4(2), pages 231-247, August.
    2. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    3. Ledoit, Olivier & Wolf, Michael, 2003. "Improved estimation of the covariance matrix of stock returns with an application to portfolio selection," Journal of Empirical Finance, Elsevier, vol. 10(5), pages 603-621, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Maximum likelihood; Equicorrelation; Correlated di usions; Wiener process; Missing data;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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