Estimation of Equicorrelated Diffusions from Incomplete Data

26 Pages Posted: 10 Nov 2011

See all articles by Robert A. Jones

Robert A. Jones

Simon Fraser University (SFU) - Department of Economics

Mohammad Zanganeh

BMO Financial Group

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

Jones, Robert A. and Zanganeh, Mohammad, Estimation of Equicorrelated Diffusions from Incomplete Data (October 28, 2011). Available at SSRN: https://ssrn.com/abstract=1944656 or http://dx.doi.org/10.2139/ssrn.1944656

Robert A. Jones (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Mohammad Zanganeh

BMO Financial Group

Ontario
Canada

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