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Minimum distance estimation and testing for interest rate models

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  • Fournié, Eric

Abstract

We present some methods for the estimation and testing of usual ergodic interest rate models based on the observation of the short interest rate on the monetary market. First, we develop a test of type Kolmogorov-Smirnov for ergodic diffusion processes. We extend the results to the case where some parameters are estimated. Thereafter, we study a minimum distance estimator, based on the Lμ2 norm of the empirical process, which can be more robust than the usual ones (MLE, Bayes, MME) to some miss-specifications of the model.

Suggested Citation

  • Fournié, Eric, 1995. "Minimum distance estimation and testing for interest rate models," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 38(1), pages 143-150.
    • Handle: RePEc:eee:matcom:v:38:y:1995:i:1:p:143-150
    DOI: 10.1016/0378-4754(93)E0077-I
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    References listed on IDEAS

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    1. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    2. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    3. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
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