Parameter estimation and bias correction for diffusion processes

  title={Parameter estimation and bias correction for diffusion processes},
  author={Cheng Yong Tang and Song Xi Chen},
This paper considers parameter estimation for continuous-time diffusion processes which are commonly used to model dynamics of financial securities including interest rates. To understand why the drift parameters are more difficult to estimate than the diffusion parameter, as observed in previous studies, we first develop expansions for the bias and variance of parameter estimators for two of the most employed interest rate processes, Vasicek and CIR processes. Then, we study the first order… CONTINUE READING
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