Parametric Estimation by Chan et al 1992

Chan et al. (1992) propose to estimate the discrete time version of equation (2) that is given by:

St+i-St=a + bSt + lSt ^ where et+1 are assumed to be i.i.d. normal variables. The Markovian property of the process and the assumption of normality enable the derivation of the log-likelihood function that can be maximized thereafter:

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