Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Comparison of Univariate Stochastic Volatility Models for U.S. Short Rates Using EMM Estimation

Contents:

Author Info

  • Ying Gu
  • Eric Zivot
Registered author(s):

    Abstract

    In this paper, the efficient method of moments (EMM) estimation using a seminonparametric (SNP) auxiliary model is employed to determine the best fitting model for the volatility dynamics of the U.S. weekly three-month interest rate. A variety of volatility models are considered, including one-factor diffusion models, two-factor and three-factor stochastic volatility (SV) models, non-Gaussian diffusion models with Stable distributed errors, and a variety of Markov regime switching (RS) models. The advantage of using EMM estimation is that all of the proposed structural models can be evaluated with respect to a common auxiliary model. We find that a continuous-time twofactor SV model, a continuous-time three-factor SV model, and a discrete-time RS-involatility model with level effect can well explain the salient features of the short rate as summarized by the auxiliary model. We also show that either an SV model with a level effect or a RS model with a level effect, but not both, is needed for explaining the data. Our EMM estimates of the level effect are much lower than unity, but around 1/2 after incorporating the SV effect or the RS effect.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://faculty.washington.edu/ezivot/research/ShortRateEMM.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2006-17.

    as in new window
    Length:
    Date of creation: Aug 2006
    Date of revision:
    Handle: RePEc:udb:wpaper:uwec-2006-17

    Contact details of provider:
    Postal: Box 353330, Seattle, WA 98193-3330
    Email:
    Web page: http://www.econ.washington.edu/
    More information through EDIRC

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:udb:wpaper:uwec-2006-17. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Goldblatt).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.