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Are levels effects important in out-of-sample performance of short rate models?

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  • Suardi, Sandy

Abstract

This paper derives short-term interest rate volatility forecasts from various interest rate models. While models that specify both GARCH and levels effects are superior in their forecasts accuracy, they systematically under predict interest rate volatility more frequently than simple short rate models.

Suggested Citation

  • Suardi, Sandy, 2008. "Are levels effects important in out-of-sample performance of short rate models?," Economics Letters, Elsevier, vol. 99(1), pages 181-184, April.
    • Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:181-184
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    1. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Chew Lian Chua & Sandy Suardi & Sarantis Tsiaplias, 2011. "Predicting Short-Term Interest Rates: Does Bayesian Model Averaging Provide Forecast Improvement?," Melbourne Institute Working Paper Series wp2011n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. Chua, Chew Lian & Suardi, Sandy & Tsiaplias, Sarantis, 2013. "Predicting short-term interest rates using Bayesian model averaging: Evidence from weekly and high frequency data," International Journal of Forecasting, Elsevier, vol. 29(3), pages 442-455.

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