Estimation of Parameters in Mean-Reverting Stochastic Systems. (16th March 2014)

• Record Type: Journal Article
• Authors: Tian, Tianhai; Zhou, Yanli; Wu, Yonghong; Ge, Xiangyu
• Other Names: Lin Xiaodong Academic Editor.
• Is Part Of: Mathematical problems in engineering. Volume 2014(2014)
• Publication Date: 2014-03-16
• Subjects: Engineering mathematics -- Periodicals; 510.2462
• DOI: 10.1155/2014/317059
• Languages: English
• ISSNs: 1024-123X

Abstract

Abstract : Stochastic differential equation (SDE) is a very important mathematical tool to describe complex systems in which noise plays an important role. SDE models have been widely used to study the dynamic properties of various nonlinear systems in biology, engineering, finance, and economics, as well as physical sciences. Since a SDE can generate unlimited numbers of trajectories, it is difficult to estimate model parameters based on experimental observations which may represent only one trajectory of the stochastic model. Although substantial research efforts have been made to develop effective methods, it is still a challenge to infer unknown parameters in SDE models from observations that may have large variations. Using an interest rate model as a test problem, in this work we use the Bayesian inference and Markov Chain Monte Carlo method to estimate unknown parameters in SDE models.