A Comparison of Alternative Nonparametric Estimators of the Short Rate Diffusion Coefficient
AbstractIn this paper we discuss the estimation of the diffusion coefficient of one-factor models for the short rate via non-parametric methods. We test the estimators proposed by Ait Sahalia (1996a), Stanton (1997) and Bandi and Phillips (2003) on Monte Carlo simulation of the Vasicek and CIR model and show that all estimators, especially that proposed by Ait-Sahalia (1996a), are problematic for values of the mean reversion coefficient typically displayed by interest rate data. Moreover all estimators depend crucially on the choice of the bandwith parameter. Data analysis shows that the estimators lead to different estimates on the data set analyzed by Ait-Sahalia (1996a) and Stanton (1997); moreover we show that the two data set are inherently different.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 445.
Date of creation: Dec 2004
Date of revision:
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-ECM-2005-01-30 (Econometrics)
- NEP-MAC-2005-01-31 (Macroeconomics)
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