Estimating the Term Structure of Volatility in Futures Yield - A Maximum Likelihood Approach
AbstractThe volatility structure of 90-day bill futures traded on the the Sydney Futures Exchange is analysed within the framework of the Heath-Jarrow-Morton model. The method involves characterisation of the transition probability density function for the forward rate process represented by the stochastic differential equation in the arbitrage-free economy. Maximisation of the likelihood function then results in the estimates of the parameters of the volatility function. The volatility function is also used in a simulation of the preference-free stochastic differential equation for bill prices.
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Bibliographic InfoPaper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 56.
Length: 30 pages
Date of creation: 01 Dec 1995
Date of revision:
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