The likelihood of mixed hitting times

Jaap Abbring, Tim Salimans

Research output: Contribution to journalArticleScientificpeer-review

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
Pages (from-to)361-375
JournalJournal of Econometrics
Volume223
Issue number2
DOIs
Publication statusPublished - Aug 2021

Keywords

  • Duration analysis
  • First passage time
  • Identification
  • Laplace transform
  • Lévy process
  • Maximum likelihood
  • Mellin's inverse formula
  • Mixture
  • Optimal stopping
  • Strike duration

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