An Empirical Comparison Of The Short Term Interest Rate Models
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| Author | : Mona Ben Salah |
| Publisher | : |
| Total Pages | : 11 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time.We studied eight different models of interest rates in the short term. The choice of these models was the aim of analyzing the relevance of certain specifications of the stochastic process of the short term interest rates, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates.To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process.
| Author | : K. C. Chan |
| Publisher | : |
| Total Pages | : 18 |
| Release | : 1991 |
| Genre | : Interest rates |
| ISBN | : |
| Author | : Clark Leavitt |
| Publisher | : |
| Total Pages | : 418 |
| Release | : 1987 |
| Genre | : Accounting fraud |
| ISBN | : |
| Author | : Xin Bo |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2006 |
| Genre | : Interest rates |
| ISBN | : |
The paper proposes a procedure for testing the alternative continuous time models of short term riskless interest rates. Parameters estimation and models comparison are presented using the Generalized Method of Moments. An empirical research to LIBOR in US dollar is given and found that the volatility of interest rate changes is to be less sensitive to the interest rate levels in contrast to previous findings. In addition the Brennan-Schwartz model is suggested to be superior to the others in term of data fit under daily observations, and CIR SR model cannot be rejected.
| Author | : Xin Bo |
| Publisher | : |
| Total Pages | : 54 |
| Release | : 2006 |
| Genre | : Interest rates |
| ISBN | : |
The paper proposes a procedure for testing the alternative continuous time models of short term riskless interest rates. Parameters estimation and models comparison are presented using the Generalized Method of Moments. An empirical research to LIBOR in US dollar is given and found that the volatility of interest rate changes is to be less sensitive to the interest rate levels in contrast to previous findings. In addition the Brennan-Schwartz model is suggested to be superior to the others in term of data fit under daily observations, and CIR SR model cannot be rejected.
| Author | : Mr.Vadim Khramov |
| Publisher | : International Monetary Fund |
| Total Pages | : 27 |
| Release | : 2013-10-17 |
| Genre | : Business & Economics |
| ISBN | : 147559464X |
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
| Author | : Lluis Navarro |
| Publisher | : |
| Total Pages | : 24 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
Yield-curve models are broadly used by the industry for valuating fixed-income securities. These models reply term-structure of interest rates observed in the market accurately. In this work we make an empirical comparison among the main one-factor models used as management portfolio tools: the Hull-White model, the squared Gaussian model and a restricted version of Black-Karasinski model.
| Author | : Mona Ben Salah |
| Publisher | : |
| Total Pages | : 12 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time. We studied nine different models of the short term interest rates. The choice of these models was the aim of analyzing the relevance of certain specifications of the the short term interest rate stochastic process, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on US three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates. To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process To further study the accurate parametric specification of the interest rate stochastic process we use a nonparametric estimation of the drift and the diffusion functions. The results prove that both should be nonlinear.
| Author | : Manuel Arapis |
| Publisher | : |
| Total Pages | : |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
This study applies the nonparametric estimation procedure to the diffusion process modeling the dynamics of short-term interest rates. This approach allows us to operate in continuous time, estimating the continuous-time model, despite the use of discrete data. Three methods are proposed. We apply these methods to two important financial data. After selecting an appropriate bandwidth for each dataset, empirical comparisons indicate that the specification of the drift has a considerable impact on the pricing of derivatives through its effect on the diffusion function. In addition, a novel nonparametric test has been proposed for specification of linearity in the drift. Our simulation directs us to reject the null hypothesis of linearity at the 5% significance level for the two financial datasets.
| Author | : Rajna Gibson |
| Publisher | : Now Publishers Inc |
| Total Pages | : 171 |
| Release | : 2010 |
| Genre | : Business & Economics |
| ISBN | : 1601983727 |
Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
