Modeling Dynamic Regime Shifts in Diffusion Processes: Approximate Maximum Likelihood Estimation for Two-Threshold Ornstein–Uhlenbeck Models

This study addresses the problem of estimating parameters in a two-threshold Ornstein–Uhlenbeck diffusion process, a model suitable for describing systems that exhibit changes in dynamics when crossing specific boundaries. Such behavior is often observed in real economic and physical processes. The main objective is to develop and evaluate a method for accurately identifying key parameters, including the threshold levels, drift changes, and diffusion coefficient, within this stochastic framework. The paper proposes an iterative algorithm based on approximate maximum likelihood estimation, which recalculates parameter values step by step until convergence is achieved. This procedure simultaneously estimates both the threshold positions and the associated process parameters, allowing it to adapt effectively to structural changes in the data. Unlike previously studied single-threshold systems, two-threshold models are more natural and offer improved applicability. The method is implemented through custom programming and tested using synthetically generated data to assess its precision and reliability. The novelty of this study lies in extending the approximate maximum likelihood framework to a two-threshold Ornstein–Uhlenbeck process and in developing an iterative estimation procedure capable of jointly recovering both threshold locations and regime-specific parameters with proven convergence properties. Results show that the algorithm successfully captures changes in the process dynamics and provides consistent parameter estimates across different scenarios. The proposed approach offers a practical tool for analyzing systems influenced by shifting regimes and contributes to a better understanding of dynamic processes in various applied fields.