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Term structure of interest models: concept and estimation problem in a continuous-time setting

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  • Orazio Di Miscia

    (Banca Intesa)

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    Abstract

    Continuous-time models have a large range of applications. They have been used for a long time to model phenomena evolving randomly and continuously in time. However, data are essentially always recorded at discrete points in time only and this is one of the main source of difficulties when the researcher is interested about their estimation. This paper review some of the estimation problems and focus the attention about the link between continuous-time stochastic process and the estimation of term structure interest rate.

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    File URL: http://128.118.178.162/eps/fin/papers/0504/0504017.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Finance with number 0504017.

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    Length: 24 pages
    Date of creation: 19 Apr 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpfi:0504017

    Note: Type of Document - pdf; pages: 24
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    Web page: http://128.118.178.162

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    Keywords: sde; discretization error;

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    1. David Backus & Silverio Foresi & Stanley Zin, 1996. "Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-8, New York University, Leonard N. Stern School of Business-.
    2. Lo, Andrew W., 1988. "Maximum Likelihood Estimation of Generalized Itô Processes with Discretely Sampled Data," Econometric Theory, Cambridge University Press, vol. 4(02), pages 231-247, August.
    3. Singleton, Kenneth J., 2001. "Estimation of affine asset pricing models using the empirical characteristic function," Journal of Econometrics, Elsevier, vol. 102(1), pages 111-141, May.
    4. Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
    5. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
    6. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
    7. Fama, Eugene F., 1990. "Term-structure forecasts of interest rates, inflation and real returns," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 59-76, January.
    8. Gallant, A. Ronald & Tauchen, George, 1996. "Which Moments to Match?," Econometric Theory, Cambridge University Press, vol. 12(04), pages 657-681, October.
    9. Brandt, Michael W. & Santa-Clara, Pedro, 2002. "Simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets," Journal of Financial Economics, Elsevier, vol. 63(2), pages 161-210, February.
    10. Yacine Ait-Sahalia, 1995. "Nonparametric Pricing of Interest Rate Derivative Securities," NBER Working Papers 5345, National Bureau of Economic Research, Inc.
    11. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
    12. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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