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The SR approach: A new estimation procedure for non-linear and non-Gaussian dynamic term structure models

Martin M. Andreasen and Bent Jesper Christensen ()

Journal of Econometrics, 2015, vol. 184, issue 2, 420-451

Abstract: This paper suggests a new approach for estimating linear and non-linear dynamic term structure models with latent factors. We impose no distributional assumptions on the factors which therefore may be non-Gaussian. The novelty of our approach is to use many observables (yields or bond prices) in the cross-section dimension. This implies that the latent factors can be determined quite accurately by a sequence of cross-section regressions. We also show how output from these regressions can be used to obtain model parameters by a two- or three-step moment-based estimation procedure.

Keywords: Bond data; GMM; Non-linear filtering; Non-linear least squares; SMM (search for similar items in EconPapers)
JEL-codes: C10 C30 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:econom:v:184:y:2015:i:2:p:420-451