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Estimating continuous-time stochastic volatility models of the short-term interest rate: a comparison of the generalized method of moments and the Kalman filter

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  • Travis Sapp

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  • Travis Sapp, 2009. "Estimating continuous-time stochastic volatility models of the short-term interest rate: a comparison of the generalized method of moments and the Kalman filter," Review of Quantitative Finance and Accounting, Springer, vol. 33(4), pages 303-326, November.
    • Handle: RePEc:kap:rqfnac:v:33:y:2009:i:4:p:303-326
    DOI: 10.1007/s11156-009-0122-2
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    1. 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 1209-1227, July.
    2. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    3. Andersen, Torben G & Sorensen, Bent E, 1996. "GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 328-352, July.
    4. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 2002. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 69-87, January.
    5. Gallant, A. Ronald & Hsieh, David & Tauchen, George, 1997. "Estimation of stochastic volatility models with diagnostics," Journal of Econometrics, Elsevier, vol. 81(1), pages 159-192, November.
    6. Melino, Angelo & Turnbull, Stuart M., 1990. "Pricing foreign currency options with stochastic volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 239-265.
    7. 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..
    8. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    9. Harvey, Andrew C & Shephard, Neil, 1996. "Estimation of an Asymmetric Stochastic Volatility Model for Asset Returns," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 429-434, October.
    10. Andersen, Torben G. & Lund, Jesper, 1997. "Estimating continuous-time stochastic volatility models of the short-term interest rate," Journal of Econometrics, Elsevier, vol. 77(2), pages 343-377, April.
    11. Brenner, Robin J. & Harjes, Richard H. & Kroner, Kenneth F., 1996. "Another Look at Models of the Short-Term Interest Rate," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(1), pages 85-107, March.
    12. Andrew Harvey & Esther Ruiz & Neil Shephard, 1994. "Multivariate Stochastic Variance Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 247-264.
    13. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    14. Vetzal, Kenneth R., 1997. "Stochastic volatility, movements in short term interest rates, and bond option values," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 169-196, February.
    15. Clifford A. Ball & Walter N. Torous, 1999. "The Stochastic Volatility of Short‐Term Interest Rates: Some International Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 2339-2359, December.
    16. Longstaff, Francis A & Schwartz, Eduardo S, 1992. "Interest Rate Volatility and the Term Structure: A Two-Factor General Equilibrium Model," Journal of Finance, American Finance Association, vol. 47(4), pages 1259-1282, September.
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    Citations

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    Cited by:

    1. Sharif Mozumder & Ghulam Sorwar & Kevin Dowd, 2013. "Option pricing under non-normality: a comparative analysis," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 273-292, February.
    2. Januj Juneja, 2018. "Empirical performance of Gaussian affine dynamic term structure models in the presence of autocorrelation misspecification bias," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 695-715, April.
    3. Yufeng Han, 2011. "On the relation between the market risk premium and market volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1711-1723.

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    More about this item

    Keywords

    Stochastic volatility; Short interest rate; Generalized method of moments; GMM; Kalman filter; Quasi-maximum likelihood; G12; C51;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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