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Testing for continuous-time models of the short-term interest rate

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  • Broze, Laurence
  • Scaillet, Olivier
  • Zakoian, Jean-Michel

Abstract

The recent financial literature has been much concerned with the short-term interest rate. Several models have been proposed and studied quite extensively. Despite the number of models, relatively little is known about their empirical comparison. A first approach of this problem is proposed in CHAN, KAROLYI, LONGSTAFF and SANDERS (1992) using a Generalized Method of Moments. In this paper, we give a general form encompassing the most usual models and derive a well specified discrete time version. Then we study the ergodic properties in order to build a consistent econometric procedure based on a maximum likelihood approach. An empirical comparison is performed using U.S. Treasury Bill data. Finally we propose an estimation strategy, based on a two-step indirect simulated method, to account for the discretization bias.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 2 (1995)
Issue (Month): 3 (September)
Pages: 199-223

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Handle: RePEc:eee:empfin:v:2:y:1995:i:3:p:199-223

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Web page: http://www.elsevier.com/locate/jempfin

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