【Topic】Semiparametric Estimation for Time-Inhomo Geneous Diffusions

【Speaker】Yan Yu,Collegeof Business,UniversityofCincinnati

【Time】2007-10-19 10:00-11:30

【Venue】Room 453, Weilun Building

【Language】Chinese

【Organizer】Department of Management Science and Engineering

【Background Information】

Abstract:

We develop two likelihood based approaches to semiparametrically estimate a class of time-inhomogeneous diffusion process: log penalized splines (P-splines) and the local log-linear method. Positive volatility is naturally embedded and this positivity is not guaranteed in mostexisting diffusion models. We investigate different smoothing parameter selection. Separate bandwidths are used for drift and volatility estimation. In the log P-splines approach, different smoothness for different time varying coefficients is feasible by assigning different penalty parameters. We also provide accompanying theorems for both approaches and report statistical inference results. Finally, we present a case study using the weekly three-month Treasury bill data from 1954 to 2004. We find that the log P-splines approach seems to capture the volatility dip in mid-1960s the best. We also present an application of calculating a financial market risk measure called Value at Risk (VaR) using statistical estimates from log P-splines.

A short Bio:

Yan Yu is currently a tenured Associate Professor of Quantitative Analysis atCollegeof Business,UniversityofCincinnati. She received her Ph.D. in Statistics atCornellUniversity, minoring in Finance. She held an M.S. in applied mathematics atTexasA&MUniversityand a B.S. in theUniversityofScienceand Technology of China. She has taken internships and consulted for Bell Labs, Lucent Technologies; Credit Suisse First Boston; and Environmental Statistics, NIH. Her research interests are statistical finance (interest rate term structure modeling, diffusion models), nonparametric estimation, and data mining. Her recent publications appear in the premier journals, such as Journal of American Statistical Association, Journal of Computational and Graphical Statistics, Statistica Sinica etc. Dr. Yu has received various academic awards. She is a frequent speaker at academic institutions and professional conferences.