Local Linear Estimation of Second-Order Diffusion Models

Abstract

In this article, we present the local linear estimations for diffusion coefficient and drift coefficient in the second-order diffusion model. We show that under mild conditions, the estimators are weak consistent. We also use a Monte Carlo experiment to compare our estimators with the ones in Nicolau (2007).

Keywords:

• Local linear estimation
• N-W estimator
• Second-order diffusion model

Mathematics Subject Classification:

• 60J60
• 62G15

Acknowledgment

The authors would like to thank the Editor and anonymous referees for their valuable suggestions, which greatly improved this article.

This research is supported by NSFC (10871177) and SRFDP (20060335032).