The Likelihood of Mixed Hitting Times

Jaap Abbring, Tim Salimans

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Abstract

We present a method for computing the likelihood of a mixed hitting-time model that specifies durations as the first time a latent Lévy process crosses a heterogeneous threshold. This likelihood is not generally known in closed form, but its Laplace transform is. Our approach to its computation relies on numerical methods for inverting Laplace transforms that exploit special properties of the first passage times of Lévy processes. We use our method to implement a maximum likelihood estimator of the mixed hitting-time model in MATLAB. We illustrate the application of this estimator with an analysis of Kennan's (1985) strike data.
Original languageEnglish
Place of PublicationIthaca
PublisherCornell University Library
Number of pages35
Publication statusPublished - 9 May 2019

Publication series

NamearXiv
Volume1905.03463

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Abbring, J., & Salimans, T. (2019). The Likelihood of Mixed Hitting Times. (arXiv; Vol. 1905.03463). Ithaca: Cornell University Library.