PMCMC for Term Structure of Interest Rates under Markov Regime Switching and Jumps

Liu Xiangdong (), Li Xianglong (), Zheng Shaozhi and Qian Hangyong
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Liu Xiangdong: Department of Statistics, Jinan University, Guangzhou510632, China
Li Xianglong: Department of Statistics, Jinan University, Guangzhou510632, China
Zheng Shaozhi: Department of Statistics, Jinan University, Guangzhou510632, China
Qian Hangyong: Department of Statistics, Jinan University, Guangzhou510632, China

Journal of Systems Science and Information, 2020, vol. 8, issue 2, 159-169

Abstract: A parameter estimation method, called PMCMC in this paper, is proposed to estimate a continuous-time model of the term structure of interests under Markov regime switching and jumps. There is a closed form solution to term structure of interest rates under Markov regime. However, the model is extended to be a CKLS model with non-closed form solutions which is a typical nonlinear and non-Gaussian state-space model(SSM) in the case of adding jumps. Although the difficulty of parameter estimation greatly prevents from researching models, we prove that the nonlinear and non-Gaussian state-space model has better performances in studying volatility. The method proposed in this paper will be implemented in simulation and empirical study for SHIBOR. Empirical results illustrate that the PMCMC algorithm has powerful advantages in tackling the models.

Keywords: PMCMC; term structure of interest rates; state-space models; regime switching; jump-diffusion (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:8:y:2020:i:2:p:159-169:n:5

DOI: 10.21078/JSSI-2020-159-11

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