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Bootstrap Results From the State Space From Representation of the Heath-Jarrow-Morton Model

This paper builds upon the authors' previous work on transformation of the Heath-Jarrow-Morton (HJM) model of the term structure of interest rates to state space form for a fairly general class of volatility specification including stochastic variables. Estimation of this volatility function is at the heart of the identification of the HJM model. The paper develops a bootstrap procedure for the HJM model cast into the non-linear filtering framework to analyse the statistical significance of the estimators. It is shown that not all combinations of the parameters of the volatility function are equally likely. The procedure also reveals distributional properties of the instantaneous spot rate of interest implied by the HJM model.

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File URL: http://www.finance.uts.edu.au/research/wpapers/wp66.pdf
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Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 66.

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Length: 47 pages
Date of creation: 01 Aug 1996
Date of revision:
Handle: RePEc:uts:wpaper:66
Contact details of provider: Postal: PO Box 123, Broadway, NSW 2007, Australia
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Web page: http://www.uts.edu.au/about/uts-business-school/finance

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  1. Dothan, L. Uri, 1978. "On the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 59-69, March.
  2. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
  3. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
  4. Bhar, R. & Hunt, D.F., 1993. "Predicting the Short Term Forward Interest Rate Structure Using a Parsimonious Model," Papers e9307, Western Sydney - School of Business And Technology.
  5. Chan, K C, et al, 1992. " An Empirical Comparison of Alternative Models of the Short-Term Interest Rate," Journal of Finance, American Finance Association, vol. 47(3), pages 1209-27, July.
  6. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
  7. Flesaker, Bjorn, 1993. "Testing the Heath-Jarrow-Morton/Ho-Lee Model of Interest Rate Contingent Claims Pricing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 483-495, December.
  8. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
  9. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  10. Rubinstein, Mark, 1994. " Implied Binomial Trees," Journal of Finance, American Finance Association, vol. 49(3), pages 771-818, July.
  11. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
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