Two methods of estimation of the drift parameters of the Cox-Ingersoll-Ross process: continuous observations

Abstract: We consider a stochastic differential equation of the form

d r_{t} = (a - b r_{t}) d t + s i g m a s q r t r_{t} d W_{t}

, where

a

,

b

and

s i g m a

are positive constants. The solution corresponds to the Cox-Ingersoll-Ross process. We study the estimation of an unknown drift parameter

(a, b)

by continuous observations of a sample path

r_{t}, t i n [0, T]

. First, we prove the strong consistency of the maximum likelihood estimator. Since this estimator is well-defined only in the case

2 a > s i g m a^{2}

, we propose another estimator that is defined and strongly consistent for all positive

a

,

b

,

s i g m a

. The quality of the estimators is illustrated by simulation results.

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