Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jan, 2003, Volume 71, Issue 1

Fully Nonparametric Estimation of Scalar Diffusion Models
p. 241-283

Federico M. Bandi, Peter C. B. Phillips

We propose a functional estimation procedure for homogeneous stochastic differential equations based on a discrete sample of observations and with minimal requirements on the data generating process. We show how to identify the drift and diffusion function in situations where one or the other function is considered a nuisance parameter. The asymptotic behavior of the estimators is examined as the observation frequency increases and as the time span lengthens. We prove almost sure consistency and weak convergence to mixtures of normal laws, where the mixing variates depend on the chronological local time of the underlying diffusion process, that is the random time spent by the process in the vicinity of a generic spatial point. The estimation method and asymptotic results apply to both stationary and nonstationary recurrent processes.

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