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Nonparametric Threshold Estimation for Drift Function in Jump–Diffusion Model of Interest Rate Using Asymmetric Kernel

Author

Listed:
  • Yuping Song

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China
    These authors contributed equally to this work are co-first authors.)

  • Chen Li

    (Institute for Financial Studies, Shandong University, Jinan 250100, China
    These authors contributed equally to this work are co-first authors.)

  • Hemin Wang

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

  • Jiayi Meng

    (School of Economics and Management, China Jiliang University, Hangzhou 310018, China)

  • Liang Hao

    (School of Finance and Business, Shanghai Normal University, Shanghai 200234, China)

Abstract

The existing estimators for the drift coefficient in the diffusion model with jumps involve jump components and possess larger boundary error. How to effectively estimate the drift function is an important issue that faces challenges and has theoretical significance. In this paper, the gamma asymmetric kernel for boundary correction and threshold function eliminating jump impacts are combined to estimate the unknown drift coefficient in the jump diffusion process of interest rate. The asymptotic large sample property and the better finite sample property through the Monte Carlo numerical simulation experiment and the empirical analysis of SHIBOR and LIBOR for the corresponding estimator are considered in detail. It is found that the estimator proposed in this paper can correct the estimation error near or far away from the origin point, which provides a more asymptotic unbiased estimator for the drift function in diffusion models with jumps.

Suggested Citation

  • Yuping Song & Chen Li & Hemin Wang & Jiayi Meng & Liang Hao, 2023. "Nonparametric Threshold Estimation for Drift Function in Jump–Diffusion Model of Interest Rate Using Asymmetric Kernel," Mathematics, MDPI, vol. 11(10), pages 1-16, May.
    • Handle: RePEc:gam:jmathe:v:11:y:2023:i:10:p:2281-:d:1146496
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    References listed on IDEAS

    as
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