Empirical Investigation of Stochastic Volatility Interest Rate Models using the EMM: The Case of Korea (in Korean)

Chae-Shick Chung () and Jong Sung Lee ()
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Chae-Shick Chung: Department of Economics, Sogang University
Jong Sung Lee: Hana Financial Investment Co., Ltd

Economic Analysis (Quarterly), 2007, vol. 13, issue 3, 41-69

Abstract: The purpose of this paper is to estimate and compare various continuous stochastic volatility interest rate models of Korean interest rates. The empirical methodology is the Efficient Method of Moments (EMM). The empirical results indicate that the level effect and volatility are important ingredients in the dynamics of Korean interest rates, except when using a model in which a level effect parameter is freely estimated. Therefore, very simple and manageable continuous models, for example having two-factors at most, replicate the dynamic motions of Korean interest rates in an excellent way.

Keywords: volatility; continuous-time interest rate model; EMM; level effect; SNP (search for similar items in EconPapers)
JEL-codes: C52 G12 (search for similar items in EconPapers)
Date: 2007
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