1,235 research outputs found
A test for model specification of diffusion processes
We propose a test for model specification of a parametric diffusion process
based on a kernel estimation of the transitional density of the process. The
empirical likelihood is used to formulate a statistic, for each kernel
smoothing bandwidth, which is effectively a Studentized -distance between
the kernel transitional density estimator and the parametric transitional
density implied by the parametric process. To reduce the sensitivity of the
test on smoothing bandwidth choice, the final test statistic is constructed by
combining the empirical likelihood statistics over a set of smoothing
bandwidths. To better capture the finite sample distribution of the test
statistic and data dependence, the critical value of the test is obtained by a
parametric bootstrap procedure. Properties of the test are evaluated
asymptotically and numerically by simulation and by a real data example.Comment: Published in at http://dx.doi.org/10.1214/009053607000000659 the
Annals of Statistics (http://www.imstat.org/aos/) by the Institute of
Mathematical Statistics (http://www.imstat.org
Nonparametric estimation and specification testing of a two-factor interest rate model
We propose a simple, flexible approach to nonparametric estimation and specification testing for a two-factor interest rate model. These methods are illustrated with a Monte Carlo experiment and an empirical example.Nonparametric local linear estimation, Two-factor term structure models, Model specification tests
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Consistent nonparametric specification tests for stochastic volatility models based on the return distribution
This paper develops nonparametric specification tests for stochastic volatility models by comparing the nonparametically estimated return density and distribution functions with their parametric counterparts. Asymptotic null distributions of the tests are derived and the tests are shown to be consistent. Extensive Monte Carlo experiments are performed to study the finite sample properties of the tests. The tests are applied to an empirical dataset and we find the estimated stochastic volatility model is misspecified
Consistent nonparametric specification tests for stochastic volatility models based on the return distribution
This paper develops nonparametric specification tests for stochastic volatility models by comparing the nonparametically estimated return density and distribution functions with their parametric counterparts. Asymptotic null distributions of the tests are derived and the tests are shown to be consistent. Extensive Monte Carlo experiments are performed to study the finite sample properties of the tests. The proposed tests are applied in a number of empirical examples
Parameter estimation and model testing for Markov processes via conditional characteristic functions
Markov processes are used in a wide range of disciplines, including finance.
The transition densities of these processes are often unknown. However, the
conditional characteristic functions are more likely to be available,
especially for L\'{e}vy-driven processes. We propose an empirical likelihood
approach, for both parameter estimation and model specification testing, based
on the conditional characteristic function for processes with either continuous
or discontinuous sample paths. Theoretical properties of the empirical
likelihood estimator for parameters and a smoothed empirical likelihood ratio
test for a parametric specification of the process are provided. Simulations
and empirical case studies are carried out to confirm the effectiveness of the
proposed estimator and test.Comment: Published in at http://dx.doi.org/10.3150/11-BEJ400 the Bernoulli
(http://isi.cbs.nl/bernoulli/) by the International Statistical
Institute/Bernoulli Society (http://isi.cbs.nl/BS/bshome.htm
A bootstrap test for the comparison of nonlinear time series - with application to interest rate modelling
We study the drift of stationary diffusion processes in a time series analysis of the autoregression function. A marked empirical process measures the difference between the nonparametric regression functions of two time series. We bootstrap the distribution of a Kolmogorov-Smirnov-type test statistic for two hypotheses: Equality of regression functions and shifted regression functions.
Neither markovian behavior nor Brownian motion error of the processes are assumed. A detailed
simulation study finds the size of the new test near the nominal level and a good power for a
variety of parametric models. The two-sample result serves to test for mean reversion of the diffusion drift in several examples. The interest rates Euribor, Libor as well as T-Bond yields do not show that stylized feature often modelled for interest rates
A Likelihood Ratio Test of Stationarity Based on a Correlated Unobserved Components Model
We propose a likelihood ratio (LR) test of stationarity based on a widely-used correlated unobserved components model. We verify the asymptotic distribution and consistency of the LR test, while a bootstrap version of the test is at least first-order accurate. Given empirically-relevant processes estimated from macroeconomic data, Monte Carlo analysis reveals that the bootstrap version of the LR test has better small-sample size control and higher power than commonly used bootstrap Lagrange multiplier (LM) tests, even when the correct parametric structure is specified for the LM test. A key feature of our proposed LR test is its allowance for correlation between permanent and transitory movements in the time series under consideration, which increases the power of the test given the apparent presence of non-zero correlations for many macroeconomic variables. Based on the bootstrap LR test, and in some cases contrary to the bootstrap LM tests, we can reject trend stationarity for U.S. real GDP, the unemployment rate, consumer prices, and payroll employment in favor of nonstationary processes with volatile stochastic trends.Stationarity Test, Likelihood Ratio, Unobserved Components, Parametric Bootstrap, Monte Carlo Simulation, Small-Sample Inference
Nonparametric tests of the Markov hypothesis in continuous-time models
We propose several statistics to test the Markov hypothesis for
-mixing stationary processes sampled at discrete time intervals. Our
tests are based on the Chapman--Kolmogorov equation. We establish the
asymptotic null distributions of the proposed test statistics, showing that
Wilks's phenomenon holds. We compute the power of the test and provide
simulations to investigate the finite sample performance of the test statistics
when the null model is a diffusion process, with alternatives consisting of
models with a stochastic mean reversion level, stochastic volatility and jumps.Comment: Published in at http://dx.doi.org/10.1214/09-AOS763 the Annals of
Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical
Statistics (http://www.imstat.org
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