Testing Continuous-Time Models of the Spot Interest Rate / Yacine Ait-Sahalia.

Format:

Book

Author/Creator:

Ait-Sahalia, Yacine.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5346.

NBER working paper series no. w5346

Language:

English

Subjects (All):

Econometric models.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Cambridge, Massachussetts : National Bureau of Economic Research, [1995]

Summary:

Different continuous-time models for interest rates coexist in the literature. We test parametric models by comparing their implied parametric density to the same density estimated nonparametrically. We do not replace the continuous-time model by discrete approximations, even though the data are recorded at discrete intervals. The principal source of rejection of existing models is the strong nonlinearity of the drift. Around its mean, where the drift is essentially zero, the spot rate behaves like a random walk. The drift then mean-reverts strongly when far away from the mean. The volatility is higher when away from the mean.

Notes:

Print version record

November 1995.