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Modeling the stochastic behavior of short-term interest rates: Pricing implications for discount bonds

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  • Bali, Turan G.
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 27 (2003)
    Issue (Month): 2 (February)
    Pages: 201-228

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    Handle: RePEc:eee:jbfina:v:27:y:2003:i:2:p:201-228

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    1. Longstaff, Francis A & Schwartz, Eduardo S, 1992. " Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1259-82, September.
    2. Jiang, George J., 1998. "Nonparametric Modeling of U.S. Interest Rate Term Structure Dynamics and Implications on the Prices of Derivative Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 33(04), pages 465-497, December.
    3. Nelson, Daniel B., 1990. "ARCH models as diffusion approximations," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 7-38.
    4. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, American Finance Association, vol. 52(3), pages 923-73, July.
    5. Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers 0065, National Bureau of Economic Research, Inc.
    6. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 391-407, March.
    7. Broze, L. & Scaillet, O. & Zakoïan, J.-M., . "Testing for continuous-time models of the short-term interest rate," CORE Discussion Papers RP -1177, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Ait-Sahalia, Yacine, 1996. "Nonparametric Pricing of Interest Rate Derivative Securities," Econometrica, Econometric Society, Econometric Society, vol. 64(3), pages 527-60, May.
    9. Nelson, Daniel B & Foster, Dean P, 1994. "Asymptotic Filtering Theory for Univariate ARCH Models," Econometrica, Econometric Society, Econometric Society, vol. 62(1), pages 1-41, January.
    10. Benjamin M. Friedman & David I. Laibson, 1989. "Economic Implications of Extraordinary Movements in Stock Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 137-190.
    11. Dahlquist, Magnus, 1996. "On alternative interest rate processes," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(6), pages 1093-1119, July.
    12. Nelson, Daniel B., 1990. "Stationarity and Persistence in the GARCH(1,1) Model," Econometric Theory, Cambridge University Press, vol. 6(03), pages 318-334, September.
    13. Yacine Ait-Sahalia, 1995. "Testing Continuous-Time Models of the Spot Interest Rate," NBER Working Papers 5346, National Bureau of Economic Research, Inc.
    14. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
    15. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
    16. Bali, Turan G., 2000. "Testing the Empirical Performance of Stochastic Volatility Models of the Short-Term Interest Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 35(02), pages 191-215, June.
    17. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    18. Koedijk, C.G. & Nissen, F. & Schotman, P.C. & Wolff, C.C.P., 1997. "The dynamics of short-term interest rate volatility reconsidered," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3108628, Tilburg University.
    19. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 12(04), pages 627-627, November.
    20. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 177-188, November.
    21. Brenner, Robin J. & Harjes, Richard H. & Kroner, Kenneth F., 1996. "Another Look at Models of the Short-Term Interest Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 31(01), pages 85-107, March.
    22. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    23. Stanton, Richard, 1997. " A Nonparametric Model of Term Structure Dynamics and the Market Price of Interest Rate Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 52(5), pages 1973-2002, December.
    24. Rendleman, Richard J. & Bartter, Brit J., 1980. "The Pricing of Options on Debt Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 15(01), pages 11-24, March.
    25. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 385-407, March.
    26. Duan, Jin-Chuan, 1997. "Augmented GARCH (p,q) process and its diffusion limit," Journal of Econometrics, Elsevier, Elsevier, vol. 79(1), pages 97-127, July.
    27. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
    28. Ahn, Dong-Hyun & Gao, Bin, 1999. "A Parametric Nonlinear Model of Term Structure Dynamics," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 12(4), pages 721-62.
    29. Andersen, Torben G. & Lund, Jesper, 1997. "Estimating continuous-time stochastic volatility models of the short-term interest rate," Journal of Econometrics, Elsevier, Elsevier, vol. 77(2), pages 343-377, April.
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    Cited by:
    1. Nowman, Khalid Ben, 2010. "Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 334-341, December.
    2. Hou, Ai Jun & Suardi, Sandy, 2011. "Modelling and forecasting short-term interest rate volatility: A semiparametric approach," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(4), pages 692-710, September.
    3. Chua, Chew Lian & Suardi, Sandy & Tsiaplias, Sarantis, 2013. "Predicting short-term interest rates using Bayesian model averaging: Evidence from weekly and high frequency data," International Journal of Forecasting, Elsevier, Elsevier, vol. 29(3), pages 442-455.
    4. Paulo M.M. Rodrigues & Antonio Rubia, 2004. "On The Small Sample Properties Of Dickey Fuller And Maximum Likelihood Unit Root Tests On Discrete-Sampled Short-Term Interest Rates," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2004-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. Miguel A. Ferreira & Jose A. Lopez, 2004. "Evaluating interest rate covariance models within a value-at-risk framework," Working Paper Series 2004-03, Federal Reserve Bank of San Francisco.
    6. Teresa Corzo Santamaría & Javier Gómez Biscarri, 2005. "Nonparametric estimation of convergence of interest rates: Effects on bond pricing," Spanish Economic Review, Springer, Springer, vol. 7(3), pages 167-190, 09.
    7. Hou, Aijun & Suardi, Sandy, 2012. "A nonparametric GARCH model of crude oil price return volatility," Energy Economics, Elsevier, Elsevier, vol. 34(2), pages 618-626.
    8. Nowman, K.B. & Yahia, B.B.H., 2008. "Euro and FIBOR interest rates: A continuous time modelling analysis," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 1029-1035, December.

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