Option-Based Tests of Interest Rate Diffusion Functions

Joshua Rosenberg

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: The consistent finding in papers that estimate the interest rate diffusion function is that interest rate volatility is an increasing function of the spot rate. This paper introduces and implements regression tests of monotonic diffusion functions using an implied volatility proxy for objective volatility.

Date: 1999-06
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Persistent link: https://EconPapers.repec.org/RePEc:fth:nystfi:99-026

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