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Inference and forecasting for continuous-time integer-valued trawl processes

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  • Mikkel Bennedsen
  • Asger Lunde, Copenhagen Economics
  • ,
  • Neil Shephard, Harvard University
  • ,
  • Almut E.D. Veraart, Imperial College London

This paper develops likelihood-based methods for estimation, inference, model selection, and forecasting of continuous-time integer-valued trawl processes. The full likelihood of integer-valued trawl processes is, in general, highly intractable, motivating the use of composite likelihood methods, where we consider the pairwise likelihood in lieu of the full likelihood. Maximizing the pairwise likelihood of the data yields an estimator of the parameter vector of the model, and we prove consistency and, in the short memory case, asymptotic normality of this estimator. When the underlying trawl process has long memory, the asymptotic behaviour of the estimator is more involved; we present some partial results for this case. The pairwise approach further allows us to develop probabilistic forecasting methods, which can be used to construct the predictive distribution of integer-valued time series. In a simulation study, we document the good finite sample performance of the likelihood-based estimator and the associated model selection procedure. Lastly, the methods are illustrated in an application to modelling and forecasting financial bid–ask spread data, where we find that it is beneficial to carefully model both the marginal distribution and the autocorrelation structure of the data.

TidsskriftJournal of Econometrics
StatusUdgivet - okt. 2023

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© 2023 Elsevier B.V.

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