The Coloured Noise Expansion and Parameter Estimation of Diffusion Processes

Part of Advances in Neural Information Processing Systems 25 (NIPS 2012)

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Simon Lyons, Amos J. Storkey, Simo Särkkä


Stochastic differential equations (SDE) are a natural tool for modelling systems that are inherently noisy or contain uncertainties that can be modelled as stochastic processes. Crucial to the process of using SDE to build mathematical models is the ability to estimate parameters of those models from observed data. Over the past few decades, significant progress has been made on this problem, but we are still far from having a definitive solution. We describe a novel method of approximating a diffusion process that we show to be useful in Markov chain Monte-Carlo (MCMC) inference algorithms. We take the ‘white’ noise that drives a diffusion process and decompose it into two terms. The first is a ‘coloured noise’ term that can be deterministically controlled by a set of auxilliary variables. The second term is small and enables us to form a linear Gaussian ‘small noise’ approximation. The decomposition allows us to take a diffusion process of interest and cast it in a form that is amenable to sampling by MCMC methods. We explain why many state-of-the-art inference methods fail on highly nonlinear inference problems. We demonstrate experimentally that our method performs well in such situations. Our results show that this method is a promising new tool for use in inference and parameter estimation problems.