Assessing Italian Government bonds’ term structure with CIR model in the aftermath of EMU

Bernardo Maggi and Fabrizio Infortuna

Applied Financial Economics Letters, 2008, vol. 4, issue 3, 163-170

Abstract: In this article we analyse the term structure of the Italian Government bonds after the adoption of Euro currency. In such a framework, we make use of the CIR model and deal with the degree of different volatilities of the maturities considered. To cope with this problem, we propose a simple correction formula and make use of a reaction function to take into account the influence of the monetary policy of the ECB with the result of considerably improving the performance of the model.

Date: 2008
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DOI: 10.1080/17446540701689391

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