ESTIMATING SINGLE FACTOR JUMP DIFFUSION INTEREST RATE MODELS

Ghulam Sorwar ()
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Ghulam Sorwar: Business School Nottingham University

No 56, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: Recent empirical studies have demonstrated that behaviour of interest rate processes can be better explained if standard diffusion processes are augmented with jumps in the interest rate process. In this paper we examine the performance of both linear and non-linear one factor CKLS model in the presence of jumps. We conclude that empirical features of interest rates not captured by standard diffusion processes are captured by models with jumps and that the linear CKLS model provides sufficient explanation of the data.

Keywords: term structure; jumps; Bayesian; MCMC (search for similar items in EconPapers)
JEL-codes: C11 C13 C15 (search for similar items in EconPapers)
Date: 2005-11-11
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf5:56

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