A new instrumental variable estimation for diffusion processes

Abstract

We consider the problem of parametric inference from continuous sample paths of the diffusion processes {x(t)} generated by the system of possibly nonstationary and/or nonlinear Ito stochastic differential equations. We propose a new instrumental variable estimator of the parameter whose pivotal statistic has a Gaussian distribution for all possible values of parameter. The new estimator enables us to construct exact level-α confidence intervals and tests for the parameter in the possibly non-stationary and/or nonlinear diffusion processes. Applications to several non-stationary and/or nonlinear diffusion processes are considered as examples. ©2005 The Institute of Statistical Mathematics.