The Volatility Structure of the Fixed Income Markets under the HJM Framework

Thuy Duong To (), Carl Chiarella and Hing Hung
Additional contact information
Thuy Duong To: School of Commerce University of Adelaide
Hing Hung: University of Technology

No 260, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: Here I consider the dynamics of interest rate processes in the multi-factor model specified in Heath, Jarrow and Morton (1992). Despite its flexibility and theoretical advances, the number of empirical studies using the HJM model remains inadequate, principally because of the difficulty estimating models in this class, which are high-dimensional, nonlinear, and involve latent state variables. Here I treat the estimation of a broad class of HJM models as a nonlinear filtering problem. I adopt the local linearization filter of Jimenez and Ozaki (2003), known to have some desirable statistical and numerical features, and estimate the model using maximum likelihood. The estimator is applied to the U.S., U.K. and Australian markets. Different two- and there-factor models are found to be best for each market. The contributions of the factors towards overall variability in interest rates and the financial rewards claimed by each factor are found to differ considerably over markets

Date: 2006-07-04
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:260

Access Statistics for this paper

More papers in Computing in Economics and Finance 2006 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().