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- Title
A bootstrap test for threshold effects in a diffusion process.
- Authors
Rachinger, Heiko; Lin, Edward M. H.; Tsai, Henghsiu
- Abstract
This paper proposes a bootstrap testing approach based on an approximate maximum likelihood method to discern whether a diffusion process is linear or whether there are threshold effects in the drift, the diffusion term or in both. It complements an alternative method based on the least-squares estimator which focuses on threshold effects in the drift. Monte Carlo simulations illustrate that the proposed testing approach is able to detect the source of the non-linearity. Two empirical applications show the importance of modeling threshold effects in the diffusion instead of the drift.
- Subjects
MONTE Carlo method; MAXIMUM likelihood statistics; STOCHASTIC differential equations
- Publication
Computational Statistics, 2024, Vol 39, Issue 5, p2859
- ISSN
0943-4062
- Publication type
Article
- DOI
10.1007/s00180-023-01375-z