Conditional Likelihood Estimators for Hidden Markov Models and Stochastic Volatility Models
In statistical inference for hidden Markov models (HMMs) difficulties arise because the exact likelihood cannot be explicitly calculated. The authors propose a new contrast (process) for general HMMs, when the hidden chain has a non-compact space. This contrast is based on the conditional likelihood method which is classical in the field of ARCH-type models. The approach is theoretical but enlightens the minimal assumptions needed for statistical applications and seems to be close to exact likelihood. A general theorem which provides strong consistency of the conditional likelihood estimators under appropriate assumptions is proved. The proposed method is applied to certain examples, especially to Kalman filters ( for which this contrast and the exact likelihood lead to asymptotically equivalent estimators), and to GARCH(1,1) models. Then these results are specialized to stochastic volatility models. Finally, the case of mean reverting hidden diffusions is considered. Applications to discretely observed data are also discussed.
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