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The likelihood of mixed hitting times

Abbring,Jaap
; 
Salimans,Tim
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.
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Date
2021-08
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Tilburg University Research Output Collection
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Keywords
Duration analysis, First passage time, Identification, Laplace transform, Lévy process, Maximum likelihood, Mellin's inverse formula, Mixture, Optimal stopping, Strike duration
Citation
Abbring, J & Salimans, T 2021, 'The likelihood of mixed hitting times', Journal of Econometrics, vol. 223, no. 2, pp. 361-375. https://doi.org/10.1016/j.jeconom.2019.08.017
URI
https://hdl.handle.net/20.500.14602/75210
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