Nonparametric Estimation of Scalar Diffusion Processes of Interest Rates Using Asymmetric Kernels
AbstractThis 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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Bibliographic InfoPaper provided by Concordia University, Department of Economics in its series Working Papers with number 08011.
Length: 34 pages
Date of creation: Oct 2008
Date of revision: Dec 2008
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 and Methodology: General - - - Estimation: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
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