Parameter Estimation in Nonlinear Multivariate Stochastic Differential Equations Based on Splitting Schemes

Abstract

The likelihood functions for discretely observed nonlinear continuous-time models based on stochastic differential equations are not available except for a few cases. Various parameter estimation techniques have been proposed, each with advantages, disadvantages, and limitations depending on the application. Most applications still use the Euler-Maruyama discretization, despite many proofs of its bias. More sophisticated methods, such as Kessler's Gaussian approximation, Ozaki's Local Linearization, Aït-Sahalia's Hermite expansions, or MCMC methods, might be complex to implement, do not scale well with increasing model dimension, or can be numerically unstable. We propose two efficient and easy-to-implement likelihood-based estimators based on the Lie-Trotter (LT) and the Strang (S) splitting schemes. We prove that S has $L^p$ convergence rate of order 1, a property already known for LT. We show that the estimators are consistent and asymptotically efficient under the less restrictive one-sided Lipschitz assumption. A numerical study on the 3-dimensional stochastic Lorenz system complements our theoretical findings. The simulation shows that the S estimator performs the best when measured on precision and computational speed compared to the state-of-the-art.

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Cited by in corpus (2)

• Parameter Inference for Degenerate Diffusion Processes
• Strang Splitting for Parametric Inference in Second-order Stochastic Differential Equations