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http://dx.doi.org/10.5351/KJAS.2008.21.5.801

Mathematical Review on the Local Linearizing Method of Drift Coefficient  

Yoon, Min (Dept. of Applied Statistics, Konkuk University)
Choi, Young-Soo (Dept. of Mathematics, Hankuk University of Foreign Studies)
Lee, Yoon-Dong (Dept. of Applied Statistics, Konkuk University)
Publication Information
The Korean Journal of Applied Statistics / v.21, no.5, 2008 , pp. 801-811 More about this Journal
Abstract
Modeling financial phenomena with diffusion processes is a commonly used methodology in the area of modern finance. Recently, various types of diffusion models have been suggested to explain the specific financial processes, and their related inference methodology have been also developed. In particular, likelihood methods for the efficient and accurate inference have been explored in various ways. In this paper, we review the mathematical properties of an approximated likelihood method, which is obtained by linearizing the drift coefficient of a diffusion process.
Keywords
Diffusion models; stochastic differential equations; OU processes; likelihood inference;
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