Infinitesimal Robustness for Diffusions

University of St.Gallen Department of Economics Discussion Paper No. 2008-09

53 Pages Posted: 18 May 2008

See all articles by Davide La Vecchia

Davide La Vecchia

University of St. Gallen - Swiss Institute of Banking and Finance

Fabio Trojani

Swiss Finance Institute; University of Geneva

Date Written: April 2008

Abstract

We develop infinitesimally robust statistical procedures for general diffusion processes. We first prove existence and uniqueness of the times series influence function of conditionally unbiased M-estimators for ergodic and stationary diffusions, under weak conditions on the (martingale) estimating function used. We then characterize the robustness of M-estimators for diffusions and derive a class of conditionally unbiased optimal robust estimators. To compute these estimators, we propose a general algorithm, which exploits approximation methods for diffusions in the computation of the robust estimating function. Monte Carlo simulation shows a good performance of our robust estimators and an application to the robust estimation of the exchange rate dynamics within a target zone illustrates the methodology in a real-data application.

Keywords: Dffusion processes, Eigen expansion, Influence Function, Infinitesimal Generator, M-Estimators, Saddle-point Approximation

JEL Classification: C13, C22, C32

Suggested Citation

La Vecchia, Davide and Trojani, Fabio, Infinitesimal Robustness for Diffusions (April 2008). University of St.Gallen Department of Economics Discussion Paper No. 2008-09, Available at SSRN: https://ssrn.com/abstract=1134006 or http://dx.doi.org/10.2139/ssrn.1134006

Davide La Vecchia

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland

HOME PAGE: http://www.sbf.unisg.ch/org/sbf/web.nsf/c31e7c476ced62cec1256954003e839e/2fcd3bf5987bb1e4c125709f002

Fabio Trojani (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Geneva ( email )

Geneva, Geneva
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
1,509
rank
332,520
PlumX Metrics