Poisson-Guassian Processes and the Bond Markets / Sanjiv R. Das.

Format:

Book

Author/Creator:

Das, Sanjiv R.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6631.

NBER working paper series no. w6631

Language:

English

Subjects (All):

Poisson processes.

Bond market--Econometric models.

Bond market.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Cambridge, Massachusetts : National Bureau of Economic Research, 1998.

Summary:

That interest rates move in a discontinuous manner is no surprise to participants in the bond markets. This paper proposes and estimates a class of Poisson-Gaussian processes that allow for jumps in interest rates. Estimation is undertaken using exact continuous-time and discrete-time estimators. Analytical derivations of the characteristic functions, moments and density functions of jump-diffusion stochastic process are developed and employed in empirical estimation. These derivations are general enough to accommodate any jump distribution. We find that jump processes capture empirical features of the data which would not be captured by diffusion models. The models in the paper enable an assessment of the impact of Fed activity and day-of-week effects on the stochastic process for interest rates. There is strong evidence that existing diffusion models would be well-enhanced by jump processes.

Notes:

Print version record

July 1998.