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Indirect Robust Estimation of the Short-term Interest Rate Process;

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  • Veronika Czellar
  • G. Andrew Karolyi
  • Elvezio Ronchetti

Abstract

We introduce Indirect Robust Generalized Method of Moments (IRGMM), a new simulation-based estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it corrects both the errors due to discretization and the errors due to model misspecification. We apply this new approach to various monthly and weekly Eurocurrency interest rate series.

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Bibliographic Info

Paper provided by Institut d'Economie et Econométrie, Université de Genève in its series Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva with number 2005.02.

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Length: 29 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:gen:geneem:2005.02

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Keywords: GMM and RGMM estimators; CKLS one factor model; indirect inference;

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References

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Citations

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Cited by:
  1. Peter Fuleky, 2011. "On the Choice of the Unit Period in Time Series Models," Working Papers 2011-4, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
  2. Christiansen, Charlotte, 2008. "Level-ARCH short rate models with regime switching: Bivariate modeling of US and European short rates," International Review of Financial Analysis, Elsevier, vol. 17(5), pages 925-948, December.
  3. Yongmiao Hong & Hai Lin & Shouyang Wang, 2013. "Modeling the Dynamics of Chinese Spot Interest Rates," Papers 2013-10-14, Working Paper.
  4. Veronika Czellar & Elvezio Ronchetti, 2008. "Accurate and robust indirect inference for diffusion models," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva, Institut d'Economie et Econométrie, Université de Genève 2008.01, Institut d'Economie et Econométrie, Université de Genève.
  5. Loisel, Sébastien & Takane, Marina, 2009. "Fast indirect robust generalized method of moments," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 53(10), pages 3571-3579, August.
  6. Laurini, Márcio Poletti & Hotta, Luiz Koodi, 2013. "Indirect Inference in fractional short-term interest rate diffusions," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 94(C), pages 109-126.
  7. Asimit, Alexandru V. & Badescu, Alexandru M. & Verdonck, Tim, 2013. "Optimal risk transfer under quantile-based risk measurers," Insurance: Mathematics and Economics, Elsevier, vol. 53(1), pages 252-265.
  8. 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.

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