Goodness-of-fit test for interest rate models: An approach based on empirical processes

Abelardo Monsalve-Cobis, Wenceslao González-Manteiga and Manuel Febrero-Bande

Computational Statistics & Data Analysis, 2011, vol. 55, issue 12, 3073-3092

Abstract: A new test for the goodness of fit of parametric forms of the drift and volatility functions of interest rate models is proposed. The test is based on a marked empirical process of the residuals. More specifically, a marked empirical process is constructed using estimators of the integrated regression function and the integrated conditional variance function for the drift function and the volatility function, respectively. Distributions of these processes are approximated using bootstrap techniques. This test is then applied to simulated classical financial models and is illustrated in an empirical application to a EURIBOR data set.

Keywords: Integrated; regression; function; Integrated; conditional; variance; function; Diffusion; processes; Empirical; process; Residuals (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:55:y:2011:i:12:p:3073-3092

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