ANOVA for diffusions and Itō processes

DOI10.1214/009053606000000452zbMATH Open1246.91110arXivmath/0611274OpenAlexW3100009876MaRDI QIDQ449957FDOQ449957

Authors: Per Aslak Mykland, Lan Zhang 

Publication date: 3 September 2012

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

Abstract: It^{o} processes are the most common form of continuous semimartingales, and include diffusion processes. This paper is concerned with the nonparametric regression relationship between two such It^{o} processes. We are interested in the quadratic variation (integrated volatility) of the residual in this regression, over a unit of time (such as a day). A main conceptual finding is that this quadratic variation can be estimated almost as if the residual process were observed, the difference being that there is also a bias which is of the same asymptotic order as the mixed normal error term. The proposed methodology, ``ANOVA for diffusions and It^{o} processes, can be used to measure the statistical quality of a parametric model and, nonparametrically, the appropriateness of a one-regressor model in general. On the other hand, it also helps quantify and characterize the trading (hedging) error in the case of financial applications.

Full work available at URL: https://arxiv.org/abs/math/0611274

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zbMATH Keywords

ANOVAstable convergencediscrete samplinggoodness of fitoption hedgingstatistical uncertaintycontinuous semimartingaleparametric and nonparametric estimationsmall interval asymptotics

Mathematics Subject Classification ID

Asymptotic properties of nonparametric inference (62G20) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to economics (62P20) Non-Markovian processes: estimation (62M09) Economic time series analysis (91B84) Statistical methods; risk measures (91G70) Martingales with discrete parameter (60G42) Martingales with continuous parameter (60G44)

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