Globally optimal parameter estimates for nonlinear diffusions

DOI10.1214/09-AOS710MaRDI QIDQ847635zbMATH OpenOpenAlexFDO

Authors Aleksandar Mijatović, Paul Schneider

Publication date 19 February 2010

Published in The Annals of Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0905.3321

zbMATH Keywords

EM algorithmmaximum likelihoodestimationglobal optimizationnonlinear diffusion

Mathematics Subject Classification ID

Asymptotic properties of parametric estimators (62F12) Markov processes: estimation; hidden Markov models (62M05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Diffusion processes (60J60)

Abstract: This paper studies an approximation method for the log-likelihood function of a nonlinear diffusion process using the bridge of the diffusion. The main result (Theorem efthm:approx) shows that this approximation converges uniformly to the unknown likelihood function and can therefore be used efficiently with any algorithm for sampling from the law of the bridge. We also introduce an expected maximum likelihood (EML) algorithm for inferring the parameters of discretely observed diffusion processes. The approach is applicable to a subclass of nonlinear SDEs with constant volatility and drift that is linear in the model parameters. In this setting, globally optimal parameters are obtained in a single step by solving a linear system. Simulation studies to test the EML algorithm show that it performs well when compared with algorithms based on the exact maximum likelihood as well as closed-form likelihood expansions.

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