Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate | Zendy

José Gadelha Silva Filho | Zendy; Edson Daniel Lopes Gonçalves | Zendy

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Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate

Author(s) -

José Gadelha Silva Filho,

Edson Daniel Lopes Gonçalves

Publication year - 2015

Publication title -

brazilian business review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.176

H-Index - 4

ISSN - 1808-2386

DOI - 10.15728/bbr.2015.12.1.4

Subject(s) - term (time) , interest rate , short rate , yield curve , monetary policy , jump , volatility (finance) , common value auction , econometrics , open market operation , economics , order (exchange) , financial economics , monetary economics , microeconomics , finance , physics , quantum mechanics

In order to capture the informational effect of the Brazilian short-term interest rate (SELIC rate) by Poisson jumps, we build on the tests conducted by Das (2002) and Johannes (2004), which show the significance of such structures for U.S. Federal Open Market Committee (FOMC) announcements. As in the above researches, we have found evidence that a relevant amount of the short-term volatility in the fixed income market is captured by introducing jumps on the stochastic process of the short-term rate. This structure also allows the verification of the information content of specific events, such as Brazilian monetary policy authority (COPOM) meetings and public bond auctions.

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