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Nonparametric Estimation of Scalar Diffusion Processes of Interest Rates Using Asymmetric Kernels

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Author Info
Nikolay Gospodinov () (Concordia University)
Masayuki Hirukawa () (Northern Illinois University)

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Abstract

This paper proposes a nonparametric regression using asymmetric kernel functions for nonnegative, absolutely regular processes, and specializes this technique to estimating scalar diffusion models of spot interest rate. We illustrate the advantages of asymmetric kernel estimators for bias correction and efficiency gains. The finite-sample properties and the practical relevance of the proposed estimators are evaluated in the context of bond and option pricing. We also present estimation results from empirical analysis of the term structure of U.S. interest rates.

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File URL: http://alcor.concordia.ca/~gospodin/research/diffusion.pdf
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Publisher Info
Paper provided by Concordia University, Department of Economics in its series Working Papers with number 08011.

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Length: 34 pages
Date of creation: Oct 2008
Date of revision: Dec 2008
Handle: RePEc:crd:wpaper:08011

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Related research
Keywords: Nonparametric regression; Gamma kernel; diffusion estimation; spot interest rate; derivative pricing;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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This page was last updated on 2009-11-16.

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