On likelihood inference for stochastic volatility models

Mogens Bladt (Universidad Nacional Autonoma de Mexico), Michael Sorensen* (University of Copenhagen)


With a view to likelihood inference for discretely observed diffusion type models, a simple method of simulating diffusion bridges is proposed. The method is applicable to all ergodic one-dimensional diffusions, and has the advantage that simple simulation methods like the Euler scheme can be applied to bridge simulation. To illustrate the usefulness of the new method, we consider likelihood inference for discretely sampled diffusion models and stochastic volatility models of the diffusion type. This is joint work with Mogens Bladt, Instituto de Investigacion en Matematicas y en sistemas, Universidad Nacional Autonoma de Mexico.