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Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate

Author

Listed:
  • José Carlos Nogueira Cavalcante Filho

    (Cornell University)

  • Edson Daniel Lopes Gonçalves

    (EBAPE/FGV)

Abstract

In order to capture the informational effect of the Brazilian short-term interest rate (SELIC rate) by Poisson jumps, we build on the tests conducted by Das (2002) and Johannes (2004), which show the significance of such structures for U.S. Federal Open Market Committee (FOMC) announcements. As in the above researches, we have found evidence that a relevant amount of the short-term volatility in the fixed income market is captured by introducing jumps on the stochastic process of the short-term rate. This structure also allows the verification of the information content of specific events, such as Brazilian monetary policy authority (COPOM) meetings and public bond auctions.

Suggested Citation

  • José Carlos Nogueira Cavalcante Filho & Edson Daniel Lopes Gonçalves, 2015. "Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate," Brazilian Business Review, Fucape Business School, vol. 12(1), pages 80-103, January.
    • Handle: RePEc:bbz:fcpbbr:v:12:y:2015:i:1:p:80-103
    as

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    References listed on IDEAS

    as
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