Flexible Bayesian inference for diffusion processesusing splines

DOI10.1007/S11009-023-10056-9arXiv2106.05820OpenAlexW4387972224MaRDI QIDQ6087239FDOQ6087239

Authors: Paul A. Jenkins, Murray Pollock, Gareth O. Roberts 

Publication date: 11 December 2023

Published in: Methodology and Computing in Applied Probability (Search for Journal in Brave)

Abstract: We introduce a semi-parametric method to simultaneously infer both the drift and volatility functions of a discretely observed scalar diffusion. We introduce spline bases to represent these functions and develop a Markov chain Monte Carlo algorithm to infer, a posteriori, the coefficients of these functions in the spline basis. A key innovation is that we use spline bases to model transformed versions of the drift and volatility functions rather than the functions themselves. The output of the algorithm is a posterior sample of plausible drift and volatility functions that are not constrained to any particular parametric family. The flexibility of this approach provides practitioners a powerful investigative tool, allowing them to posit parametric models to better capture the underlying dynamics of their processes of interest. We illustrate the versatility of our method by applying it to challenging datasets from finance, paleoclimatology, and astrophysics. In view of the parametric diffusion models widely employed in the literature for those examples, some of our results are surprising since they call into question some aspects of these models.

Full work available at URL: https://arxiv.org/abs/2106.05820

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zbMATH Keywords

Markov chain Monte Carlostochastic differential equationclimate modellinginterest-rate modellingpath-space rejection samplingquasar light curve modelling

Mathematics Subject Classification ID

Markov processes: estimation; hidden Markov models (62M05) Monte Carlo methods (65C05)

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Cited In (1)

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