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Parametric Estimation of Quadratic Term Structure Models of Interest Rate

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  • Li Chen

    (Princeton University)

  • H. Vincent Poor

    (Princeton University)

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Abstract

Nonlinear filtering techniques and the quasi maximum likelihood estimator (QMLE) are applied to the problem of estimating the parameters of quadratic models for the term structure of interest rates. It is assumed that zero coupon bond yields data have been contaminated by noise, which allows the application of nonlinear filtering techniques. Without the need of real time computation, we can instead apply the smoothing techniques. The asymptotic properties of the QMLE are also analyzed in two ways: the asymptotical optimality under Kullback-Leibler criterion and its consistent conditions in general. Finally Monte Carlo simulation results are presented to confirm the performance of this strategy.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0301001.

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Length: 31 pages
Date of creation: 28 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpem:0301001

Note: Type of Document - Tex; prepared on IBM PC - PC-TEX; to print on PostScript; pages: 31 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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Related research

Keywords: Nonlinear Filtering; Quasi-maximum likelihood estimation Quadratic Term Structure Models;

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  1. Wooldridge, Jeffrey M., 1990. "A Unified Approach to Robust, Regression-Based Specification Tests," Econometric Theory, Cambridge University Press, vol. 6(01), pages 17-43, March.
  2. Duan, Jin-Chuan & Simonato, Jean-Guy, 1999. " Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 111-35, September.
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