Estimating reducible stochastic differential equations by conversion to a least-squares problem

TL;DR

This paper introduces a method to estimate reducible stochastic differential equations (SDEs) using standard nonlinear least squares software, making SDE modeling more accessible and easier to implement across various disciplines.

Contribution

It develops a novel approach to convert reducible SDE parameter estimation into a least-squares problem, facilitating use of common software and broadening applicability.

Findings

Method successfully estimates parameters for reducible SDEs with noise.

Approach extends to hierarchical models with fixed or random effects.

Code and examples provided in R for practical implementation.

Abstract

Stochastic differential equations (SDEs) are increasingly used in longitudinal data analysis, compartmental models, growth modelling, and other applications in a number of disciplines. Parameter estimation, however, currently requires specialized software packages that can be difficult to use and understand. This work develops and demonstrates an approach for estimating reducible SDEs using standard nonlinear least squares or mixed-effects software. Reducible SDEs are obtained through a change of variables in linear SDEs, and are sufficiently flexible for modelling many situations. The approach is based on extending a known technique that converts maximum likelihood estimation for a Gaussian model with a nonlinear transformation of the dependent variable into an equivalent least-squares problem. A similar idea can be used for Bayesian maximum a posteriori estimation. It is shown how to obtain parameter estimates for reducible SDEs containing both process and observation noise, including hierarchical models with either fixed or random group parameters. Code and examples in R are given. Univariate SDEs are discussed in detail, with extensions to the multivariate case outlined more briefly. The use of well tested and familiar standard software should make SDE modelling more transparent and accessible. Keywords: stochastic processes; longitudinal data; growth curves; compartmental models; mixed-effects; R