Estimation of Equicorrelated Diffusions from Incomplete Data
26 Pages Posted: 10 Nov 2011
Date Written: October 28, 2011
Abstract
The paper derives maximum likelihood parameter estimators for symmetrically correlated Weiner processes observed at discrete intervals. Such processes arise when pricing and determining Value-at-Risk for portfolio derivatives. Cases of driftless and mean-reverting state variables are considered. The procedure is applicable to samples with missing data of any pattern and to high dimensional systems. The estimation procedure is illustrated using a sample of stock prices.
Keywords: Maximum likelihood, Equicorrelation, Correlated diffusions, Wiener process, Missing data
JEL Classification: C51, C58, G11, G21
Suggested Citation: Suggested Citation
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