Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate

José Filho and Edson Gonçalves
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José Filho: Cornell University

Brazilian Business Review, 2015, vol. 12, issue 1, 80-103

Abstract: In order to capture the informational effect of the Brazilian short-term interest rate (SELIC rate) by Poisson jumps, we build on the tests conducted by Das (2002) and Johannes (2004), which show the significance of such structures for U.S. Federal Open Market Committee (FOMC) announcements. As in the above researches, we have found evidence that a relevant amount of the short-term volatility in the fixed income market is captured by introducing jumps on the stochastic process of the short-term rate. This structure also allows the verification of the information content of specific events, such as Brazilian monetary policy authority (COPOM) meetings and public bond auctions.

Keywords: Stochastic; process.; Broadcasts.; Selic; rate.; Poisson; jumps.; Fixed; income. (search for similar items in EconPapers)
Date: 2015
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