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How to verify that a given process is a L\'evy-Driven Ornstein-Uhlenbeck Process by Abdelrazeq, Ibrahim; Smith, Hardy; Zhanbyrshy, Dinmukhammed is a scholarly article available to read on EtoBox.

What is How to verify that a given process is a L\'evy-Driven Ornstein-Uhlenbeck Process about?

Assuming that a L\'evy-Driven Ornstein-Uhlenbeck (or CAR(1)) processes is observed at discrete times $0$, $h$, $2h$,$\cdots$ $[T/h]h$. We introduce a step-by-step methodological approach on how a person would verify the model assumptions. The methodology involves estimating the model parameters and approximating the driving process. We demonstrate how to use the increments of the approximated driving process, along with the estimated parameters, to test the assumptions that the CAR(1) process is L\'evy-driven. We then show how to test the hypothesis that the CAR(1) process belongs to a specified class of L\'evy processes. The performance of the tests is illustrated through multiple simulations. Finally, we demonstrate how to apply the methodology step-by-step to a variety of economic and financial data examples.

Author

Abdelrazeq, Ibrahim; Smith, Hardy; Zhanbyrshy, Dinmukhammed

Published

2025

Language

EN