The jump component of the volatility structure of interest rate futures markets: An international comparison

Carl Chiarella and Thuy‐Duong Tô

Journal of Futures Markets, 2003, vol. 23, issue 12, 1125-1158

Abstract: We propose a generalization of the Shirakawa ( 1991 ) model to capture the jump component in fixed‐income markets. The model is formulated under the Heath, Jarrow, & Morton ( 1992 ) framework, and allows the presence of a Wiener noise and a finite number of Poisson noises, each associated with a time deterministic volatility function. We derive the evolution of the futures price and use this evolution to estimate the model parameters via the likelihood transformation technique of Duan ( 1994 ). We apply the method to the short‐term futures contracts traded on CME, SFE, LIFFE, and TIFFE, and find that each market is characterized by very different behavior. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1125–1158, 2003

Date: 2003
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Working Paper: The Jump Component of the Volatility Structure of Interest Rate Futures Markets: An International Comparison (2003)
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