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Indirect Inference in fractional short-term interest rate diffusions

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  • Laurini, Márcio Poletti
  • Hotta, Luiz Koodi

Abstract

In this article we discuss the estimation of continuous time interest rate models driven by fractional Brownian motion (fBm) using discretely sampled data. In the presence of a fractional Brownian motion, usual estimation methods for continuous time models are not appropriate since in general fBm is neither a semimartingale nor a Markov process. In this context, we discuss the use of simulation-based Indirect Inference.

Suggested Citation

  • Laurini, Márcio Poletti & Hotta, Luiz Koodi, 2013. "Indirect Inference in fractional short-term interest rate diffusions," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 94(C), pages 109-126.
  • Handle: RePEc:eee:matcom:v:94:y:2013:i:c:p:109-126
    DOI: 10.1016/j.matcom.2013.06.003
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