jumpDiffusionNegativeLogLikelihood.R

#This is the code for the negative log likelihood function
#for the JUmp-difusion model

nll_jumps<-function(w)
{
  mu=w[1] # drift
  s=(w[2]) # diffsuive vol
  lam=(w[3]) # jump frequency
  mu_j=w[4] # jump size
  s_j=(w[5]) # jump volatility
  
  #Case where there are no jumps
  m=dnorm(x,mean=mu*delta,sd=s*sqrt(delta))*dpois(0,lam*delta)
  
  #The mixture is cut off at 10
  for(n in 1:10)
  {
    m=m+dnorm(x,mean=(mu*delta+n*mu_j),sd=sqrt(s^2*delta+s_j^2*n))*dpois(n,lam*delta) #likelihood
  }
  -sum(log(m))
}