Estimation of continuous-time interest rate models: a nonparametric approach

Orazio Di Miscia
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Orazio Di Miscia: Banca Intesa

Finance from EconWPA

Abstract: This paper presents a general, nonlinear model for term structure interest rate. The approach is the same of Stanton (1997) but it has been extended to a multifactor model. The novel aspect is that rather than choosing the functional specification of the model, the process is generated from the data using approximation methods for multifactor continuous-time Markov processes. In applying this technique to the short and long end of the term structure for a general two-factor diffusion process for interest rates is possible to find some interesting nonlinearity in the interest rate data that are not considered in almost all parametric specifications of term structure interest rate model of the financial literature.

Keywords: continuous-time models; nonparametric estimation; multi-factor interest rate model (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2005-04-19
Note: Type of Document - pdf; pages: 39
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0504015

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