The Jump Component of the Volatility Structure of Interest Rate Futures Markets: An International Comparison
Thuy Duong To and
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Thuy Duong To: University of Technology, Sydney
No 205, Royal Economic Society Annual Conference 2003 from Royal Economic Society
We propose a generalization of the Shirakawa (1991) model to capture the jump component in fixed income markets. The model is formulated under the Heath, Jarrow and Morton (1992) framework, and allows the presence of a Wiener noise and a finite number of Poisson noises, each associated with a time deterministic volatility function. We derive the evolution of the futures price and use this evolution to estimate the model parameters via the likelihood transformation technique of Duan (1994). We apply the method to the short term futures contracts traded on CME, SFE, LIFFE and TIFFE, and find that each market is characterized by very different behaviour.
Keywords: term structure; Heath-Jarrow-Morton; Jump-diffusion; FIML; likelihood transformation; interest rate futures (search for similar items in EconPapers)
JEL-codes: C51 E43 G12 G13 (search for similar items in EconPapers)
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Journal Article: The jump component of the volatility structure of interest rate futures markets: An international comparison (2003)
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