Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates

Charlotte Christiansen

No F-2005-03, Finance Research Group Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper introduces regime switching volatility into level- ARCH models for the short rates of the US, the UK, and Germany. Once regime switching and level effects are included there are no gains from including ARCH effects. It is of secondary importance exactly how the regime switching is specified. The estimated level parameters are very different across countries. The corresponding new bivariate models for the US and UK short rates show that the states of the US and UK short rate volatilities are not independent nor identical. Equivalently, the US and German volatility states are neither independent nor identical

Keywords: Bivariate short-rate model; International short rates; Level-ARCH model; Regime switching (search for similar items in EconPapers)
Pages: 48 pages
Date: 2005-09-23
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Level-ARCH short rate models with regime switching: Bivariate modeling of US and European short rates (2008)
Working Paper: Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates (2007)
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