Indirect Robust Estimation of the Short-Term Interest Rate Process

Veronika Czellar, G. Andrew Karolyi and Elvezio Ronchetti
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Veronika Czellar: UNIGE - Université de Genève = University of Geneva
G. Andrew Karolyi: OSU - The Ohio State University [Columbus]
Elvezio Ronchetti: UNIGE - Université de Genève = University of Geneva

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Abstract: We propose Indirect Robust Generalized Method of Moments (IRGMM), a simulation-based estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it corrects both the errors due to discretization and the errors due to model misspecification. We apply this approach to monthly US risk free rates and to various monthly Eurocurrency rates and provide extensive evidence of its predictive performances in a variety of settings.

Date: 2007-09-01
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Citations: View citations in EconPapers (17)

Published in Journal of Empirical Finance, 2007, 14 (4), 546-563 p. ⟨10.1016/j.jempfin.2006.09.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02313232

DOI: 10.1016/j.jempfin.2006.09.004

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