Testing for Continuous-Time Models of the Short-Term Interest Rate

Laurence Broze (), Olivier Scaillet and Jean-Michel Zakoian

No 1993031, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The recent financial literature has been much concerned with the short-term interest rate. Several models have been proposed and studied quite extensively. Despite the number of models, relatively little is known about their empirical comparison. A first approach of this problem is proposed in CHAN, KAROLYI, LONGSTAFF and SANDERS (1992) using a Generalized Method of Moments. In this paper, we give a general form encompassing the most usual models and derive a well specified discrete time version. Then we study the ergodic properties in order to build a consistent econometric procedure based on a maximum likelihood approach. An empirical comparison is performed using U.S. Treasury Bill data. Finally we propose an estimation strategy, based on a two-step indirect simulated method, to account for the discretization bias.

Date: 1993-07-01
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Testing for continuous-time models of the short-term interest rate (1995)
Working Paper: Testing for continuous-time models of the short-term interest rate (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1993031

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