Least squares volatility change point estimation for partially observed diffusion processes

Abstract

A one dimensional diffusion process $X=\{X_t, 0\leq t \leq T\}$, with drift $b(x)$ and diffusion coefficient $σ(θ, x)=\sqrtθ σ(x)$ known up to $θ>0$, is supposed to switch volatility regime at some point $t^*\in (0,T)$. On the basis of discrete time observations from $X$, the problem is the one of estimating the instant of change in the volatility structure $t^*$ as well as the two values of $θ$, say $θ_1$ and $θ_2$, before and after the change point. It is assumed that the sampling occurs at regularly spaced times intervals of length $Δ_n$ with $nΔ_n=T$. To work out our statistical problem we use a least squares approach. Consistency, rates of convergence and distributional results of the estimators are presented under an high frequency scheme. We also study the case of a diffusion process with unknown drift and unknown volatility but constant.