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Efficient estimation of drift parameters in stochastic volatility models

Abstract : We study the parametric problem of estimating the drift coefficient in a stochastic volatility model Y-t=integral(t)(0)root V-S dW(S), where Y is a log price process and V the volatility process. Assuming that one can recover the volatility, precisely enough, from the observation of the price process, we construct an efficient estimator for the drift parameter of the diffusion V. As an application we present the efficient estimation based on the discrete sampling (Y-i delta n)(i=0,...,n) with delta(n)-> 0 and n delta(n)->infinity. We show that our setup is general enough to cover the case of 'microstructure noise' for the price process as well.
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Submitted on : Tuesday, May 1, 2012 - 8:04:32 PM
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Arnaud Gloter. Efficient estimation of drift parameters in stochastic volatility models. Finance and Stochastics, Springer Verlag (Germany), 2007, 11 (4), pp.495--519. ⟨10.1007/s00780-007-0048-2⟩. ⟨hal-00693087⟩



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