Estimating Parameters of Short-Term Real Interest Rate Models PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Estimating Parameters of Short-Term Real Interest Rate Models PDF full book. Access full book title Estimating Parameters of Short-Term Real Interest Rate Models by Mr.Vadim Khramov. Download full books in PDF and EPUB format.
Author: Mr.Vadim Khramov
Publisher: International Monetary Fund
ISBN: 1475591225
Category : Business & Economics
Languages : en
Pages : 27
Get Book Here
Book Description
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
Author: Mr.Vadim Khramov
Publisher: International Monetary Fund
ISBN: 1475591225
Category : Business & Economics
Languages : en
Pages : 27
Get Book Here
Book Description
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
Author: Mr.Vadim Khramov
Publisher: International Monetary Fund
ISBN: 147559464X
Category : Business & Economics
Languages : en
Pages : 27
Get Book Here
Book Description
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
Author: Ken O. Kortanek
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 248
Get Book Here
Book Description
This book offers a new approach to interest rate and modeling term structure by using models based on optimization of dynamical systems, rather than the traditional stochastic differential equation models. The authors use dynamic models to estimate the term structure of interest rates and show the reader how to build their own numerical simulations. It includes software that will enable readers to simulate the various models covered in the book.
Author: Mona Ben Salah
Publisher:
ISBN:
Category :
Languages : en
Pages : 12
Get Book Here
Book Description
This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time. We studied nine different models of the short term interest rates. The choice of these models was the aim of analyzing the relevance of certain specifications of the the short term interest rate stochastic process, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on US three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates. To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process To further study the accurate parametric specification of the interest rate stochastic process we use a nonparametric estimation of the drift and the diffusion functions. The results prove that both should be nonlinear.
Author: Desmond John Mc Manus
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 50
Get Book Here
Book Description
Considers a wide range of several continuous-time one-factor models for short-term interest rates that are nested into one general model.
Author: Jessica James
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 680
Get Book Here
Book Description
Back Cover ( this section should include endorsements also) As interest rate markets continue to innovate and expand it is becoming increasingly important to remain up-to-date with the latest practical and theoretical developments. This book covers the latest developments in full, with descriptions and implementation techniques for all the major classes of interest rate models - both those actively used in practice as well as theoretical models still 'waiting in the wings'. Interest rate models, implementation methods and estimation issues are discussed at length by the authors as are important new developments such as kernel estimation techniques, economic based models, implied pricing methods and models on manifolds. Providing balanced coverage of both the practical use of models and the theory that underlies them, Interest Rate Modelling adopts an implementation orientation throughout making it an ideal resource for both practitioners and researchers. Back Flap Jessica James Jessica James is Head of Research for Bank One's Strategic Risk Management group, based in the UK. Jessica started life as a physicist at Manchester University and completed her D Phil in Theoretical Atomic and Nuclear Physics at Christ Church, Oxford, under Professor Sandars. After a year as a college lecturer at Trinity, Oxford, she began work at the First National Bank of Chicago, now Bank One, where she still works. She is well known as a speaker on the conference circuit, lecturing on a variety of topics such as VaR, capital allocation, credit derivatives and interest rate modelling, and has published articles on various aspects of financial modelling. Nick Webber Nick Webber is a lecturer in Finance at Warwick Business School. Prior to his academic career, Nick had extensive experience in the industrial and commercial world in operational research and computing. After obtaining a PhD in Theoretical Physics from Imperial College he began research into financial options. His main area of research centres on interest rate modelling and computational finance. He has taught practitioner and academic courses for many years, chiefly on options and interest rates. Front Flap Interest Rate Modelling provides a comprehensive resource on all the main aspects of valuing and hedging interest rate products. A series of introductory chapters reviews the theoretical background, pointing out the problems in using naïve valuation and implementation techniques. There follows a full analysis of interest rate models including major categories, such as Affine, HJM and Market models, and in addition, lesser well known types that include Consol, Random field and Jump-augmented Models. Implementation methods are discussed in depth including the latest developments in the use of finite difference, Lattice and Monte Carlo methods and their particular application to the valuation of interest rate derivatives. Containing previously unpublished material, Interest Rate Modelling is a key reference work both for practitioners developing and implementing models for real and for academics teaching and researching in the field.
Author: Damiano Brigo
Publisher: Springer Science & Business Media
ISBN: 3662045532
Category : Mathematics
Languages : en
Pages : 544
Get Book Here
Book Description
The 2nd edition of this successful book has several new features. The calibration discussion of the basic LIBOR market model has been enriched considerably, with an analysis of the impact of the swaptions interpolation technique and of the exogenous instantaneous correlation on the calibration outputs. A discussion of historical estimation of the instantaneous correlation matrix and of rank reduction has been added, and a LIBOR-model consistent swaption-volatility interpolation technique has been introduced. The old sections devoted to the smile issue in the LIBOR market model have been enlarged into a new chapter. New sections on local-volatility dynamics, and on stochastic volatility models have been added, with a thorough treatment of the recently developed uncertain-volatility approach. Examples of calibrations to real market data are now considered. The fast-growing interest for hybrid products has led to a new chapter. A special focus here is devoted to the pricing of inflation-linked derivatives. The three final new chapters of this second edition are devoted to credit. Since Credit Derivatives are increasingly fundamental, and since in the reduced-form modeling framework much of the technique involved is analogous to interest-rate modeling, Credit Derivatives -- mostly Credit Default Swaps (CDS), CDS Options and Constant Maturity CDS - are discussed, building on the basic short rate-models and market models introduced earlier for the default-free market. Counterparty risk in interest rate payoff valuation is also considered, motivated by the recent Basel II framework developments.
Author: Mona Ben Salah
Publisher:
ISBN:
Category :
Languages : en
Pages : 11
Get Book Here
Book Description
This article attempts to identify the best model of the short term interest rates that can predict its stochastic process over time.We studied eight different models of interest rates in the short term. The choice of these models was the aim of analyzing the relevance of certain specifications of the stochastic process of the short term interest rates, the effect of mean reversion and the sensitivity of the volatility to the level of interest rate.The yield on three months treasury bills is used as a proxy for the short term interest rates. The parameters of the different stochastic process are estimated using the generalized method of moments. The results show that the effect of mean reversion is not statistically significant and that volatility is highly sensitive to the level of interest rates.To further study the performance prediction of the intertemporal behavior of the short term interest rate of the various models; we simulated their stochastic process for different periods.The results show that none of the studied models reproduce the actual path of the short term interest rates. The problem lies in the parametric specification of the mean and volatility of the diffusion process.
Author: Takashi Yasuoka
Publisher: Bentham Science Publishers
ISBN: 1681086891
Category : Business & Economics
Languages : en
Pages : 325
Get Book Here
Book Description
Interest Rate Modeling for Risk Management presents an economic model which can be used to compare interest rate and perform market risk assessment analyses. The key interest rate model applied in this book is specified under real-world measures, and the result is used as to generate scenarios for interest rates. The book introduces a theoretical framework that allows estimating the market price of interest rate risk. For this, the book starts with a brief explanation of stochastic analysis, and introduces interest rate models such as Heath-Jarrow-Morton, Hull-White and LIBOR models. The real-world model is then introduced in subsequent chapters. Additionally, the book also explains some properties of the real-world model, along with the negative price tendency of the market price for risk and a positive market price of risk (with practical examples). Readers will also find a handy appendix with proofs to complement the numerical methods explained in the book. This book is intended as a primer for practitioners in financial institutions involved in interest rate risk management. It also presents a new perspective for researchers and graduates in econometrics and finance on the study of interest rate models. The second edition features an expanded commentary on real world models as well as additional numerical examples for the benefit of readers.
Author: Nicola Anderson
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 248
Get Book Here
Book Description
A yield curve is a graph indicating the term structure of interest rates by plotting the yields of all bonds of the same quality. This book provides a thorough analysis of estimation techniques and a survey of yield curve interpretation. On the former it is the most advanced book in its field, on the latter it provides an introduction to more specialised texts. It also provides important insight into the latest thinking on these techniques at the Bank of England.
