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Nonparametric Estimation of a Multifactor Heath-Jarrow-Morton Model: An Integrated Approach

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Abstract

We develop a nonparametric estimator for the volatility structure of the zero coupon yield curve in the Heath-Jarrow-Morton framework. The estimator incorporates cross-sectional restrictions along the maturity dimension, and also allows for measurement errors, which arise from the estimation of the yield curve from noisy data. The estimates are implemented with daily CRSP bond data.

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File URL: http://cowles.econ.yale.edu/P/cd/d13a/d1311.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1311.

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Length: 47 pages
Date of creation: Jul 2001
Date of revision:
Publication status: Published in Journal of Financial Econometrics (2004), 2(2): 251-289
Handle: RePEc:cwl:cwldpp:1311

Note: CFP 1143.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Measurement error; multifactor model; nonparametric estimation; volatility structure;

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References

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  2. Pierluigi Balduzzi & Sanjiv Ranjan Das & Silverio Foresi, 1998. "The Central Tendency: A Second Factor In Bond Yields," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 62-72, February.
  3. Hardle, W., 1992. "Applied Nonparametric Methods," Papers 9206, Tilburg - Center for Economic Research.
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  16. Robert R. Bliss & Peter Richken, 1996. "Empirical tests of two state-variable Heath-Jarrow models," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 452-481.
  17. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  18. Chan, K C, et al, 1992. " An Empirical Comparison of Alternative Models of the Short-Term Interest Rate," Journal of Finance, American Finance Association, vol. 47(3), pages 1209-27, July.
  19. de Jong, Frank & Santa-Clara, Pedro, 1999. "The Dynamics of the Forward Interest Rate Curve: A Formulation with State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 131-157, March.
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  22. Qiang Dai & Kenneth J. Singleton, 1997. "Specification Analysis of Affine Term Structure Models," NBER Working Papers 6128, National Bureau of Economic Research, Inc.
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