Kalman Filtering of Generalized Vasicek Term Structure Models

Simon H. Babbs and K. Ben Nowman

Journal of Financial and Quantitative Analysis, 1999, vol. 34, issue 1, 115-130

Abstract: We present a subclass of Langetieg's (1980).linear Gaussian models of the term structure. The bond price is derived in terms of a finite set of state variables with correlated innovations. The subclass contains a reformulation of the double-decay model of Beaglehole and Tenney (1991), enabling us to clarify interpretation of their parameters. We apply Kalman filtering to a state space formulation of the model, allowing measurement errors in the data. One-, two-, and three-factor models are estimated on U.S. data from 1987–1996 and the results indicate the subclass of models can fit the U.S. term structure.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:34:y:1999:i:01:p:115-130_00

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