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Gaussian Estimation of Single‐Factor Continuous Time Models of The Term Structure of Interest Rates
Author(s) -
NOWMAN K. B.
Publication year - 1997
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1997.tb01127.x
Subject(s) - term (time) , econometrics , estimation , discrete time and continuous time , gaussian , range (aeronautics) , volatility (finance) , mathematics , cox–ingersoll–ross model , economics , short rate model , yield curve , interest rate , statistics , finance , physics , engineering , management , quantum mechanics , aerospace engineering
This article presents the first application in finance of recently developed methods for the Gaussian estimation of continuous time dynamic models. A range of one factor continuous time models of the short‐term interest rate are estimated using a discrete time model and compared to a recent discrete approximation used by Chan, Karolyi, Longstaff, and Sanders (1992a, hereafter CKLS). Whereas the volatility of short‐term rates is highly sensitive to the level of rates in the United States, it is not in the United Kingdom.