We derive the exact distribution of the maximum likelihood estimator of the mean reversion parameter (k) in the Ornstein-Uhlenbeck process by employing numerical integration via analytical evaluation of a joint characteristic function. Different scenarios are considered: known or unknown drift...

Econometricians have recently been interested in estimating and testing the mean reversion parameter (κ) in linear diffusion models. It has been documented that the maximum likelihood estimator (MLE) of κ tends to over estimate the true value. Its asymptotic distribution, on the other...

A model of financial asset price determination is proposed that incorporates flat trading features into an e¡é cient price process. The model involves the superposition of a Brownian semimartin- gale process for the efficient price and a Bernoulli process that determines the extent of flat...

A recursive regression methodology is used to analyze the bubble characteristics of various fi- nancial time series during the subprime crisis. The methods provide a technology for identifying bubble behavior and consistent dating of their origination and collapse. Seven relevant financial...

A new methodology is proposed to estimate theoretical prices of financial contin- gent claims whose values are dependent on some other underlying financial assets. In the literature, the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but...

Some limit theory is developed for estimators suggested in Phillips, Wu and Yu (2009) for dating bubble pheonoma in time series data. The models involve mildly explosive autoregressions and the tests rely on right sided recursive unit root tests. The estimates locate the origination and collapse...

This paper examines how volatility responds to return news in the context of stochastic volatility (SV) using a nonparametric method. The correlation structure in the classical leverage SV model is generalized based on a linear spline. In the new model the correlation between the return...

Right-tailed unit root tests have proved promising for detecting exuberance in economic and financial activities. Like left-tailed tests, the limit theory and test performance are sensitive to the null hypothesis and the model specification used in parameter estimation. This paper aims to...

Identifying and dating explosive bubbles when there is periodically collapsing behavior over time has been a major concern in the economics literature and is of great importance for practitioners. The complexity of the nonlinear structure inherent in multiple bubble phenomena within the same...

Maximum likelihood estimation of the persistence parameter in the discrete time unit root model is known for suffering from a downward bias. The bias is more pronounced in the continuous time unit root model. Recently Chambers and Kyriacou (2010) introduced a new jackknife method to remove the...