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Continuous-time short term interest rate models

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  • K. Ben Nowman

Abstract

A number of continuous time models of the short-term interest rate are estimated using recently developed Gaussian estimation methods on four currencies interest rates. Results indicate that for the US and Japanese currencies currently used models perform well in capturing the adjustment of the interest rate process. It is also found that for the French and Italian currencies the dependence of volatility on the level of the interest rate is significantly higher than is usually assumed by well-known models.

Suggested Citation

  • K. Ben Nowman, 1998. "Continuous-time short term interest rate models," Applied Financial Economics, Taylor & Francis Journals, vol. 8(4), pages 401-407.
  • Handle: RePEc:taf:apfiec:v:8:y:1998:i:4:p:401-407
    DOI: 10.1080/096031098332934
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    Citations

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    Cited by:

    1. Diether Beuermann & Antonios Antoniou & Alejandro Bernales, 2005. "The Dynamics of the Short-Term Interest Rate in the UK," Finance 0512029, EconWPA.
    2. Sirimon Treepongkaruna, 2003. "Quasi-maximum likelihood estimates of Kiwi short-term interest rate," Applied Economics Letters, Taylor & Francis Journals, vol. 10(15), pages 937-942.
    3. Nowman, K. Ben & Sorwar, Ghulam, 1999. "Pricing UK and US securities within the CKLS model Further results," International Review of Financial Analysis, Elsevier, vol. 8(3), pages 235-245, March.
    4. José Luis Fernández Serrano & Mª Dolores Robles Fernández, 2002. "Política Monetaria y Cambios de Régimen en los tipos de Interés del Mercado Interbancario," Documentos de Trabajo del ICAE 0209, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    5. Episcopos, Athanasios, 2000. "Further evidence on alternative continuous time models of the short-term interest rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(2), pages 199-212, June.
    6. José Luis Fernández-Serrano & M. Dolores Robles Fernández, 2004. "Política monetaria y cambios de régimen en los tipos de interés del mercado interbancario español," Investigaciones Economicas, Fundación SEPI, vol. 28(2), pages 349-376, May.
    7. Byers, S. L. & Nowman, K. B., 1998. "Forecasting U.K. and U.S. interest rates using continuous time term structure models," International Review of Financial Analysis, Elsevier, vol. 7(3), pages 191-206.
    8. Ram Bhar & Carl Chiarella & Wolfgang Runggaldier, 2001. "Estimation in Models of the Instantaneous Short Term Interest Rate By Use of a Dynamic Bayesian Algorithm," Research Paper Series 68, Quantitative Finance Research Centre, University of Technology, Sydney.
    9. Ram Bhar & Carl Chiarella & Hing Hung & Wolfgang Runggaldier, 2004. "The Volatility of the Instantaneous Spot Interest Rate Implied by Arbitrage Pricing - A Dynamic Bayesian Approach," Finance 0409002, EconWPA.

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