Testing the parametric form of the volatility in continuous time diffusion models

Abstract

This work presents tests for the parametric form of the volatility function in diffusion processes. We consider two types of hypothesis --- the hypothesis of constant volatility and general form of volatility.

Proposed tests are numerically illustrated and compared with respect to numerical problems.

Keywords

• Diffusion processes
• volatility
• constant volatility
• general form of volatility
• tests.