Nonparametric Density Estimation and Tests of Continuous Time Interest Rate Models
I study the finite sample distribution of one of Ait-Sahalia's (1996c) nonparametric tests of continuous-time models of the short-term riskless rate. The test rejects true models too often because interest rate data are highly persistent but the asymptotic distribution of the test (and of the kernel density estimator on which the test is based) treats the data as if it were independently and identically distributed. To attain the accuracy of the kernel density estimator implied by its asymptotic distribution with 22 years of data generated from the Vasicek model in fact requires 2755 years of data. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
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Volume (Year): 11 (1998)
Issue (Month): 3 ()
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- Ait-Sahalia, Yacine, 1996.
"Testing Continuous-Time Models of the Spot Interest Rate,"
Review of Financial Studies,
Society for Financial Studies, vol. 9(2), pages 385-426.
- Yacine Ait-Sahalia, 1995. "Testing Continuous-Time Models of the Spot Interest Rate," NBER Working Papers 5346, National Bureau of Economic Research, Inc.
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- BROZE, Laurence & SCAILLET, Olivier & ZAKOIAN , Jean-Michel, 1993. "Testing for Continuous-Time Models of the Short-Term Interest Rate," CORE Discussion Papers 1993031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
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- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Newey, Whitney K, 1985. "Maximum Likelihood Specification Testing and Conditional Moment Tests," Econometrica, Econometric Society, vol. 53(5), pages 1047-1070, September.
- Wand, M. P., 1992. "Finite sample performance of density estimators under moving average dependence," Statistics & Probability Letters, Elsevier, vol. 13(2), pages 109-115, January. Full references (including those not matched with items on IDEAS)
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