Specification tests for the variance of a diffusion

Valentina Corradi, Halbert White

Research output: Contribution to journalArticlepeer-review

Abstract

We propose specification tests for the variance of a diffusion that do not require complete knowledge of the functional form under the null. We first propose a test for the constancy of the variance that, under the null of constancy, has a limiting normal distribution, while under the alternative of either unconditional or conditional heteroskedasticity it diverges at an appropriate rate. We then propose a test for the null of a parametric specification against the alternative of a more general functional form. Under the null, the test has a well-defined limiting distribution, normal in the unconditional and mixed normal in the conditional heteroskedasticity case; under the alternative, it diverges.

Original languageEnglish (US)
Pages (from-to)253-270
Number of pages18
JournalJournal of Time Series Analysis
Volume20
Issue number3
DOIs
StatePublished - May 1999

Keywords

  • Diffusion processes
  • Heteroskedasticity
  • Local times
  • Nonparametric estimation

ASJC Scopus subject areas

  • Statistics and Probability
  • Statistics, Probability and Uncertainty
  • Applied Mathematics

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