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Jump-Diffusion Calibration using Differential Evolution

Author

Listed:
  • Ardia, David
  • Ospina, Juan
  • Giraldo, Giraldo

Abstract

The estimation of a jump-diffusion model via Differential Evolution is presented. Finding the maximum likelihood estimator for such processes is a tedious task due to the multimodality of the likelihood function. The performance of the Differential Evolution algorithm is compared to standard optimization techniques.

Suggested Citation

  • Ardia, David & Ospina, Juan & Giraldo, Giraldo, 2010. "Jump-Diffusion Calibration using Differential Evolution," MPRA Paper 26184, University Library of Munich, Germany, revised 25 Oct 2010.
    • Handle: RePEc:pra:mprapa:26184
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    File URL: https://mpra.ub.uni-muenchen.de/26184/1/MPRA_paper_26184.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/27852/2/MPRA_paper_27852.pdf
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    References listed on IDEAS

    as
    1. Mullen, Katharine M. & Ardia, David & Gil, David L. & Windover, Donald & Cline, James, 2011. "DEoptim: An R Package for Global Optimization by Differential Evolution," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 40(i06).
    2. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    3. Ball, Clifford A. & Torous, Walter N., 1983. "A Simplified Jump Process for Common Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 53-65, March.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Beckers, Stan, 1981. "A Note on Estimating the Parameters of the Diffusion-Jump Model of Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(1), pages 127-140, March.
    6. Ardia, David & Boudt, Kris & Carl, Peter & Mullen, Katharine M. & Peterson, Brian, 2010. "Differential Evolution (DEoptim) for Non-Convex Portfolio Optimization," MPRA Paper 22135, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rodrigue Oeuvray & Pascal Junod, 2013. "On time scaling of semivariance in a jump-diffusion process," Papers 1311.1122, arXiv.org.
    2. Jevtić, Petar & Luciano, Elisa & Vigna, Elena, 2013. "Mortality surface by means of continuous time cohort models," Insurance: Mathematics and Economics, Elsevier, vol. 53(1), pages 122-133.
    3. Mullen, Katharine M., 2014. "Continuous Global Optimization in R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 60(i06).

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    More about this item

    Keywords

    Jump-diffusion; maximum likelihood; optimization; Differential Evolution;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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