Estimating and Testing Exponential Affine Term Structure Models by Kalman Filter

Jin-Chuan Duan and Jean-Guy Simonato ()

CIRANO Working Papers from CIRANO

Abstract: This paper proposes a unified state-space formulation for parameter estimation of exponential-affine term structure models. This class of models, charaterized by Duffie and Kan (1993), contains models such as Vasicek (1977), Cox, Ingersoll and Ross (1985) and Chen and Scott (1992), among others. The proposed method uses an approximate linear Kalman filter which only requires specifying the conditional mean and variance of the system in an approximate sense. The method allows for measurement errors in the observed yields to maturitiy, and can simultaneously deal with many yields on bonds with different maturities. A Monte Carlo study indicates thet the proposed method is a reliable procedure for moderate sample sizes. An empirical analysis of three existing exponential-affine term structure models is carried out using monthly U.S. Treasury yield data with four different maturities. Our test results indicate a strong rejection of all three models. Cette recherche propose une approche unificatrice pour l'estimation des paramètres de modèles de structure de taux d'intérêt de la classe exponentielle-affine. Cette famille de modèles, caractérisée par Duffie et Kan (1993), contient entre autres les modèles de Vasicek (1977), Cox, Ingersoll et Ross (1985) et Chen et Scott (1992). La méthode proposée utilise un filtre de Kalman approximatif qui requiert la spécification de l'espérance et de la variance conditionnelle du système. La méthode utilise simultanément plusieurs séries de rendements et permet l'ajout d'erreurs de mesure pour chaque serie. Une étude de simulation indique que la méthode proposée est fiable pour des échantillons de taille modérée. Une étude empirique utilisant trois modèles différents de la classe exponentielle-affine est présentée.

Keywords: Term Structure; Kalman Filter; Exponential Affine; State Space Model; Quasi Maximum Likelihood; Lagrange Multiplier Test; Structure à Terme; Filtre de Kalman; Exponentielle-affine; Modèle State-Space; Quasi-maximum de vraisemblance; Test du Multiplicateur de Lagrange (search for similar items in EconPapers)
Date: 1995-10-01
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:95s-44

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