Mathematical Review on the Local Linearizing Method of Drift Coefficient

- Journal title : Korean Journal of Applied Statistics
- Volume 21, Issue 5, 2008, pp.801-811
- Publisher : The Korean Statistical Society
- DOI : 10.5351/KJAS.2008.21.5.801

Title & Authors

Mathematical Review on the Local Linearizing Method of Drift Coefficient

Yoon, Min; Choi, Young-Soo; Lee, Yoon-Dong;

Yoon, Min; Choi, Young-Soo; Lee, Yoon-Dong;

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;

Language

Korean

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