Likelihood-based estimation of a semiparametric time-dependent jump diffusion model of the short-term interest rate

Tianshun Yan (), Yanyong Zhao and Wentao Wang
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Tianshun Yan: Chongqing Technology and Business University
Yanyong Zhao: Nanjing Audit University
Wentao Wang: Xi’an Jiaotong University

Computational Statistics, 2020, vol. 35, issue 2, No 6, 539-557

Abstract: Abstract This paper proposes a semiparametric time-dependent jump diffusion model in an effort to capture the dynamic behavior of short-term interest rates. The newly proposed model includes a wide variety of well-known interest rate models, incorporating the time-varying instantaneous return, volatility as well as jump component. The local likelihood density estimation technique together with pseudo likelihood estimation method is employed to estimate the parameters of the model. Some simulations are conducted to examine the statistical performance of our estimators. The proposed procedure is then applied to analyze daily federal funds rate.

Keywords: Local likelihood density estimation; Pseudo likelihood estimation; Jump diffusion model; Bootstrap; Short-term interest rate (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00180-019-00875-1

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