IDEAS home Printed from
   My bibliography  Save this paper

Application Of The Kalman Filter For Estimating Continuous Time Term Structure Models: Evidence From The Uk And Germany


  • Rana Chatterjee


In this paper a state-space representation for the single-factor Cox, Ingersoll and Ross (1985) model is employed to analyse the intertemporal dynamics of the term structure for UK Gilts and Euro-denominated German Treasury bonds. Closed form solutions for the prices of discount bonds are derived such that they are a function of the unobserved instantaneous spot rate and the model's parameters. Quasi-maximum likelihood estimates of the model parameters are obtained by using the Kalman filter algorithm to calculate the likelihood function. Empirical results show that a one-factor CIR model provides an adequate description of the dynamics of the UK term structure of interest rates for the period 1999-2003. But it is unable to provide such a good description of the German term structure owing to its inability to account for the market price of risk

Suggested Citation

  • Rana Chatterjee, 2004. "Application Of The Kalman Filter For Estimating Continuous Time Term Structure Models: Evidence From The Uk And Germany," Computing in Economics and Finance 2004 346, Society for Computational Economics.
  • Handle: RePEc:sce:scecf4:346

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. repec:bla:jfnres:v:22:y:1999:i:1:p:107-130 is not listed on IDEAS
    2. Richard, Scott F., 1978. "An arbitrage model of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 33-57, March.
    3. Duan, Jin-Chuan & Simonato, Jean-Guy, 1999. "Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 111-135, September.
    4. Geyer, Alois L J & Pichler, Stefan, 1999. "A State-Space Approach to Estimate and Test Multifactor Cox-Ingersoll-Ross Models of the Term Structure," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(1), pages 107-130, Spring.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Nowman, Khalid Ben, 2010. "Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models," International Review of Financial Analysis, Elsevier, vol. 19(5), pages 334-341, December.

    More about this item


    Kalman filtering; term structure;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:346. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.