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Option-Based Tests of Interest Rate Diffusion Functions

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  • Joshua Rosenberg

Abstract

The consistent finding in papers that estimate the interest rate diffusion function is that interest rate volatility is an increasing function of the spot rate. This paper introduces and implements regression tests of monotonic diffusion functions using an implied volatility proxy for objective volatility.

Suggested Citation

  • Joshua Rosenberg, 1999. "Option-Based Tests of Interest Rate Diffusion Functions," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-026, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:99-026
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    File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99026.pdf
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    References listed on IDEAS

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    13. Amin, Kaushik I & Ng, Victor K, 1997. "Inferring Future Volatility from the Information in Implied Volatility in Eurodollar Options: A New Approach," The Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 333-367.
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