Premium
Fitting Yield Curve Models Using the Kalman Filter
Author(s) -
Walther B.,
May A.,
Fischer T.
Publication year - 2003
Publication title -
pamm
Language(s) - English
Resource type - Journals
ISSN - 1617-7061
DOI - 10.1002/pamm.200310523
Subject(s) - vasicek model , cox–ingersoll–ross model , yield curve , kalman filter , econometrics , short rate model , short rate , mathematics , interest rate , computer science , statistics , economics , finance , volatility (finance)
We consider several stochastic interest rate models relying on the classes of Gaussian and square root processes. In particular, we introduce both, the Vasicek and the Cox‐Ingersoll‐Ross model, with k factors. Kalman filter methods are applied in order to estimate the parameters of these models. A detailed empirical analysis based on data from the German debt securities market is performed. The models are compared with respect to the number of factors and the different model classes. As a result, we suggest the application of the Vasicek model with at least two factors and the Cox‐Ingersoll‐Ross model with two factors.