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Type: Journal article
Title: A test for model specification of diffusion processes
Author: Chen, S.
Gao, J.
Cheng, Y.
Citation: Annals of Statistics, 2008; 36(1):167-198
Publisher: Inst Mathematical Statistics
Issue Date: 2008
ISSN: 0090-5364
Statement of
Song Xi Chen, Jiti Gao and Cheng Yong Tang
Abstract: We propose a test for model specification of a parametric diffusion process based on a kernel estimation of the transitional density of the process. The empirical likelihood is used to formulate a statistic, for each kernel smoothing bandwidth, which is effectively a Studentized L2-distance between the kernel transitional density estimator and the parametric transitional density implied by the parametric process. To reduce the sensitivity of the test on smoothing bandwidth choice, the final test statistic is constructed by combining the empirical likelihood statistics over a set of smoothing bandwidths. To better capture the finite sample distribution of the test statistic and data dependence, the critical value of the test is obtained by a parametric bootstrap procedure. Properties of the test are evaluated asymptotically and numerically by simulation and by a real data example.
Keywords: Bootstrap; diffusion process; empirical likelihood; goodness-of-fit test; time series; transitional density
RMID: 0020095527
DOI: 10.1214/009053607000000659
Description (link):
Appears in Collections:Economics publications

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