Gaussian Estimation of Continuous Time Models of the Short Term Interest Rate

Jun Yu and Peter Phillips

No 1309, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper proposes a Gaussian estimator for nonlinear continuous time models of the short term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite sample performance of the proposed procedure offers an improvement over the discrete approximation method proposed by Nowman (1997). An empirical application to U.S. and British interest rates is given.

Keywords: Gaussian estimation; nonlinear diffusion; normalizing transformation (search for similar items in EconPapers)
JEL-codes: C14 C22 G12 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2001-07
New Economics Papers: this item is included in nep-ecm, nep-ent, nep-ets and nep-net
Note: CFP 1124 and CFP 1347, "Corrigendum," Econometrics Journal (February 2011), 14(4): 126-129
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Citations: View citations in EconPapers (24)

Published in Econometrics Journal (December 2001), 4(2): 210-225

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