Nonparametric estimation of trawl processes: Theory and Applications

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Publication date: 13 September 2022

Abstract: Trawl processes belong to the class of continuous-time, strictly stationary, infinitely divisible processes; they are defined as L'{e}vy bases evaluated over deterministic trawl sets. This article presents the first nonparametric estimator of the trawl function characterising the trawl set and the serial correlation of the process. Moreover, it establishes a detailed asymptotic theory for the proposed estimator, including a law of large numbers and a central limit theorem for various asymptotic relations between an in-fill and a long-span asymptotic regime. In addition, it develops consistent estimators for both the asymptotic bias and variance, which are subsequently used for establishing feasible central limit theorems which can be applied to data. A simulation study shows the good finite sample performance of the proposed estimators and, in an empirical illustration, the new methodology is applied to modelling and forecasting high-frequency financial spread data from a limit order book.

Has companion code repository: https://github.com/almutveraart/nonparametric-trawl-estimation

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