Download or read book An Empirical Comparison of the Short Term Interest Rate Models written by Mona Ben Salah and published by . This book was released on 2014 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time.We studied eight different models of interest rates in the short term. The choice of these models was the aim of analyzing the relevance of certain specifications of the stochastic process of the short term interest rates, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates.To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process.

Download or read book Comparison of Alternative Models of the Short term Interest Rate written by Xin Bo and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper proposes a procedure for testing the alternative continuous time models of short term riskless interest rates. Parameters estimation and models comparison are presented using the Generalized Method of Moments. An empirical research to LIBOR in US dollar is given and found that the volatility of interest rate changes is to be less sensitive to the interest rate levels in contrast to previous findings. In addition the Brennan-Schwartz model is suggested to be superior to the others in term of data fit under daily observations, and CIR SR model cannot be rejected.

Download or read book The Volatility of Short term Interest Rates written by K. C. Chan and published by . This book was released on 1991 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Volatility of Short term Interest Rates written by Clark Leavitt and published by . This book was released on 1987 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Comparison of Alternative Models of the Short term Interest Rate written by Xin Bo and published by . This book was released on 2006 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper proposes a procedure for testing the alternative continuous time models of short term riskless interest rates. Parameters estimation and models comparison are presented using the Generalized Method of Moments. An empirical research to LIBOR in US dollar is given and found that the volatility of interest rate changes is to be less sensitive to the interest rate levels in contrast to previous findings. In addition the Brennan-Schwartz model is suggested to be superior to the others in term of data fit under daily observations, and CIR SR model cannot be rejected.

Download or read book Estimating Parameters of Short Term Real Interest Rate Models written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2013-10-17 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.

Download or read book An Elementary Introduction to Stochastic Interest Rate Modeling written by Nicolas Privault and published by World Scientific. This book was released on 2008 with total page 191 pages. Available in PDF, EPUB and Kindle. Book excerpt: This textbook is written as an accessible introduction to interest rate modeling and related derivatives, which have become increasingly important subjects of interest in financial mathematics. The models considered range from standard short rate to forward rate models and include more advanced topics such as the BGM model and an approach to its calibration. An elementary treatment of the pricing of caps and swaptions under forward measures is also provided, with a focus on explicit calculations and a step-by-step introduction of concepts. Each chapter is accompanied with exercises and their complete solutions, making this book suitable for advanced undergraduate or beginning graduate-level students.

Download or read book An Empirical Comparison of Continuous Time Models of the Short Term Interest Rate written by Turan G. Bali and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper compares the empirical performance of a wide variety of well-known diffusion models - with particular emphasis on the Black, Derman, and Toy (1990) term structure model - in capturing the dynamic behavior of interest rate volatility. Many popular models are nested within a more flexible time-varying BDT framework that allows us to determine the appropriate specification of the spot rate process. The empirical results for the one-month Treasury yields indicate that the equilibrium models that do not allow the drift and diffusion parameters to vary over time and parameterize the volatility only as a function of interest rate levels fail to model adequately the serial correlation in conditional variances. On the other hand, the serial-correlation-based arbitrage-free models with time-dependent parameters in the drift and diffusion functions may fail to capture adequately the relationship between interest rate levels and volatility. The results also suggest that time-varying volatilities within the BDT framework may lead to non-recombining binomial trees that increase the storage requirements and computational cost substantially in pricing interest rate contingent claims.

Download or read book An Empirical Comparison of Single Factor Consistent Models written by Lluis Navarro and published by . This book was released on 2019 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Yield-curve models are broadly used by the industry for valuating fixed-income securities. These models reply term-structure of interest rates observed in the market accurately. In this work we make an empirical comparison among the main one-factor models used as management portfolio tools: the Hull-White model, the squared Gaussian model and a restricted version of Black-Karasinski model.

Download or read book Comparison of the Short Term Interest Rate Models written by Mona Ben Salah and published by . This book was released on 2014 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time. We studied nine different models of the short term interest rates. The choice of these models was the aim of analyzing the relevance of certain specifications of the the short term interest rate stochastic process, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on US three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates. To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process To further study the accurate parametric specification of the interest rate stochastic process we use a nonparametric estimation of the drift and the diffusion functions. The results prove that both should be nonlinear.

Download or read book Another Look at Models of the Short Term Interest Rate written by Robin J. Brenner and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The short-term rate of interest is fundamental to much of theoretical and empirical finance. Yet no consensus has emerged on the dynamics of its volatility. We show that models which parameterize volatility only as a function of interest rate levels tend to over-emphasize the sensitivity of volatility to levels and fail to model adequately the serial correlation in conditional variances. On the other hand, serial correlation-based models like GARCH models fail to capture adequately the relationship between interest rate levels and volatility. We introduce and test a new class of models for the dynamics of short- term interest rate volatility which allows volatility to depend on both interest rate levels and information shocks. Two important conclusions emerge. First, the sensitivity of interest rate volatility to interest rate levels has been overstated in the literature. While this relationship is important, adequately modeling volatility as a function of unexpected information shocks is also important. Second, we conclude that the volatility processes in many existing theoretical models of interest rates are misspecified, and suggest new paths toward improving the theory.

Download or read book An Empirical Comparison of Alternative Models for Valuing Interest Rate Options written by Wolfgang Bühler and published by . This book was released on 1997 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article presents the first comprehensive comparative study of alternative models for valuing interest rate options. One and two factor inversion models of the Hull/White type and one and two factor Heath/J arrow/Morton models are considered. The valuation models are assessed by different criteria which are of considerable importance for the practical use of the models. To assess empirical performance, the models are tested on an identical set of bond warrant data. Not only the empirical quality, however, but also the practical problems in implementing the different approaches contribute to the differentiation of the models.

Download or read book Empirical Comparisons in Short Term Interest Rate Models Using Nonparametric Methods written by Manuel Arapis and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study applies the nonparametric estimation procedure to the diffusion process modeling the dynamics of short-term interest rates. This approach allows us to operate in continuous time, estimating the continuous-time model, despite the use of discrete data. Three methods are proposed. We apply these methods to two important financial data. After selecting an appropriate bandwidth for each dataset, empirical comparisons indicate that the specification of the drift has a considerable impact on the pricing of derivatives through its effect on the diffusion function. In addition, a novel nonparametric test has been proposed for specification of linearity in the drift. Our simulation directs us to reject the null hypothesis of linearity at the 5% significance level for the two financial datasets.

Download or read book An Empirical Analysis of Stochastic Interest Rate Models written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this thesis is to analyze three stochastic short rate models and to assess their in-sample and out-of-sample performances. Only models that can be used in the affine term structure framework are considered in this thesis. The analysis is conducted with three different proxy rates for the instantaneous interest rate: one week GBP LIBOR, one week USD LIBOR and one week CHF LIBOR. All three time series start on Monday 1st December 1997 when the one week LIBOR rate was introduced and end on Monday 29th September 2008. The end date has been chosen, as interest rates dropped to near zero shortly afterwards and a structural break might have occurred. The occurrence of this regime shift is also shown with econometric techniques in the thesis. The results of the in-sample analysis is that the CIR model clearly outperforms the other two models as it can accommodate for heteroskedasticity. In the out-of-sample part, all three models do not perform well and no clear ranking emerges between the models.

Download or read book A Simple Model of the Long Term Interest Rate written by Akram Tanweer and published by . This book was released on 2020 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a simple model of the long-term interest rate. The model represents John Maynard Keynes's conjecture that the central bank's actions influence the long-term interest rate primarily through the short-term interest rate, while allowing for other important factors. It relies on the geometric Brownian motion to formally model Keynes's conjecture. Geometric Brownian motion has been widely used in modeling interest rate dynamics in quantitative finance. However, it has not been used to represent Keynes's conjecture. Empirical studies in support of the Keynesian perspective and the stylized facts on the dynamics of the long-term interest rate on government bonds suggest that interest rate models based on Keynes's conjecture can be advantageous.

Download or read book Long term Interest Rate Modeling written by Anna Kalemanova and published by . This book was released on 2001 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Empirical Comparison of Forward and Spot rate Models for Valuing Interest rate Options written by Wolfgang Bühler and published by . This book was released on 1997 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: