TY - JOUR
T1 - Nonparametric model validations for hidden Markov models with applications in financial econometrics
AU - Zhao, Zhibiao
N1 - Funding Information:
I am grateful to Editor Professor Ronald Gallant, an Associate Editor, three anonymous referees, and Professor Wei Biao Wu for their constructive comments. This work was partially supported by a NIDA grant P50-DA10075 . The content is solely the responsibility of the authors and does not necessarily represent the official views of the NIDA or the NIH.
PY - 2011/6
Y1 - 2011/6
N2 - We address the nonparametric model validation problem for hidden Markov models with partially observable variables and hidden states. We achieve this goal by constructing a nonparametric simultaneous confidence envelope for transition density function of the observable variables and checking whether the parametric density estimate is contained within such an envelope. Our specification test procedure is motivated by a functional connection between the transition density of the observable variables and the Markov transition kernel of the hidden states. Our approach is applicable for continuous-time diffusion models, stochastic volatility models, nonlinear time series models, and models with market microstructure noise.
AB - We address the nonparametric model validation problem for hidden Markov models with partially observable variables and hidden states. We achieve this goal by constructing a nonparametric simultaneous confidence envelope for transition density function of the observable variables and checking whether the parametric density estimate is contained within such an envelope. Our specification test procedure is motivated by a functional connection between the transition density of the observable variables and the Markov transition kernel of the hidden states. Our approach is applicable for continuous-time diffusion models, stochastic volatility models, nonlinear time series models, and models with market microstructure noise.
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U2 - 10.1016/j.jeconom.2011.01.002
DO - 10.1016/j.jeconom.2011.01.002
M3 - Article
C2 - 21750601
AN - SCOPUS:79955057940
SN - 0304-4076
VL - 162
SP - 225
EP - 239
JO - Journal of Econometrics
JF - Journal of Econometrics
IS - 2
ER -