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The jump component of the volatility structure of interest rate futures markets: An international comparison
Author(s) -
Chiarella Carl,
Tô ThuyDuong
Publication year - 2003
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10105
Subject(s) - futures contract , jump , volatility (finance) , economics , econometrics , fixed income , generalization , futures market , financial economics , poisson distribution , mathematics , bond , statistics , physics , finance , mathematical analysis , quantum mechanics
We propose a generalization of the Shirakawa (1991) model to capture the jump component in fixed‐incomemarkets. The model is formulated under the Heath, Jarrow, & Morton (1992) framework, and allows the presenceof a Wiener noise and a finite number of Poisson noises, each associated with a time deterministic volatility function. We derive the evolution of thefutures price and use this evolution to estimate the model parameters via the likelihood transformation technique of Duan (1994). We apply the method to the short‐term futures contracts traded on CME, SFE, LIFFE, and TIFFE, and find thateach market is characterized by very different behavior. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1125–1158, 2003