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- Title
ESTIMATES OF THE SHORT-TERM RATE PROCESS IN AN ARBITRAGE-FREE FRAMEWORK.
- Authors
KAZEMI, HOSSEIN; MAHDAVI, MAHNAZ; SALAZAR, BRETT
- Abstract
This paper uses a new restriction imposed by the no-arbitrage condition on interest rate processes to estimate the parameters of the short-term rates for US, France, UK and Germany. A general process that nests almost all previous one-factor models is estimated. The results show that the volatility structure of US short-term rate is similar to the processes suggested by Duffie and Kahn [9] or Chan et al. [4] depending on the proxy used for the short-term rate and the time period covered by the study. The volatility structures of the short-term rates in France and Germany do not have constant elasticity with respect to the short-term rate, while the elasticity of UK's short-term rate is constant and equal to 1.5.
- Subjects
UNITED Kingdom; ESTIMATION theory; RATE processes; MODELS &; modelmaking; MARKET volatility; ELASTICITY
- Publication
International Journal of Theoretical & Applied Finance, 2004, Vol 7, Issue 5, p577
- ISSN
0219-0249
- Publication type
Article
- DOI
10.1142/S0219024904002566