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Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data

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  • Lo, Andrew W.

Abstract

This paper considers the parametric estimation problem for continuous-time stochastic processes described by first-order nonlinear stochastic differential equations of the generalized Itô type (containing both jump and diffusion components). We derive a particular functional partial differential equation which characterizes the exact likelihood function of a discretely sampled Itô process. In addition, we show by a simple counterexample that the common approach of estimating parameters of an Itô process by applying maximum likelihood to a discretization of the stochastic differential equation does not yield consistent estimators.

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  • 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.
    • Handle: RePEc:cup:etheor:v:4:y:1988:i:02:p:231-247_01
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