Parameter Estimation of the Extended Vasiček Model

Authors

  • Sanae RUJIVAN Division of Mathematics, School of Science, Walailak University, Nakhon Si Thammarat 80161

Keywords:

The extended Vasiček model, transition density, maximum likelihood estimation

Abstract

In this paper, an estimate of the drift and diffusion parameters of the extended Vasiček model is presented. The estimate is based on the method of maximum likelihood. We derive a closed-form expansion for the transition (probability) density of the extended Vasiček process and use the expansion to construct an approximate log-likelihood function of a discretely sampled data of the process. Approximate maximum likelihood estimators (AMLEs) of the parameters are obtained by maximizing the approximate log-likelihood function. The convergence of the AMLEs to the true maximum likelihood estimators is obtained by increasing the number of terms in the expansions with a small time step size.

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References

O Vasiček. An equilibrium characterization of the term structure. J. Financ. Economet. 1977; 5, 177-88.

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SRS Varadhan and WS Daniel. Multidimensional Diffusion Processes, Springer, Heidelberg, 1997, p. 121-35.

S Choi. 2005, Three Essays on Continuous-time Diffusion Models, Ph.D. Dissertation. University of Wisconsin-Madison, United States.

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S Rujivan. Closed-form expansions for transition densities of convenience yield processes. Walailak J. Sci. & Tech. 2009; 6, 127-40.

P Glasserman. Monte Carlo Methods in Financial Engineering, Springer, Heidelberg, 2004, p. 1-36.

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Published

2011-11-07

How to Cite

RUJIVAN, S. (2011). Parameter Estimation of the Extended Vasiček Model. Walailak Journal of Science and Technology (WJST), 7(1), 69–73. Retrieved from https://wjst.wu.ac.th/index.php/wjst/article/view/54

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Section

Research Article