Nonparametric Bayesian estimation of a Hölder continuous diffusion coefficient
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pseudo-likelihoodstochastic differential equationvolatilitydiffusion coefficientnonparametric Bayesian estimationposterior contraction rateGaussian likelihood
Density estimation (62G07) Applications of statistics to economics (62P20) Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70) Economic time series analysis (91B84) Diffusion processes (60J60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)
Abstract: We consider a nonparametric Bayesian approach to estimate the diffusion coefficient of a stochastic differential equation given discrete time observations over a fixed time interval. As a prior on the diffusion coefficient, we employ a histogram-type prior with piecewise constant realisations on bins forming a partition of the time interval. Specifically, these constants are realizations of independent inverse Gamma distributed randoma variables. We justify our approach by deriving the rate at which the corresponding posterior distribution asymptotically concentrates around the data-generating diffusion coefficient. This posterior contraction rate turns out to be optimal for estimation of a H"older-continuous diffusion coefficient with smoothness parameter Our approach is straightforward to implement, as the posterior distributions turn out to be inverse Gamma again, and leads to good practical results in a wide range of simulation examples. Finally, we apply our method on exchange rate data sets.
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Cited in
(8)- Nonparametric Bayesian volatility learning under microstructure noise
- BART-based inference for Poisson processes
- Nonparametric Bayesian volatility estimation for gamma-driven stochastic differential equations
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