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An empirical comparison of interest rates using an interest rate model and nonparametric methods

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  • K. Ben Nowman
  • Burak Saltoglu

Abstract

A continuous time interest rate model is estimated using Gaussian estimation methods of Nowman (Journal of Finance, 52, 1695-706, 1997; Asia Pacific Financial Markets, 8, 23-34, 2001) and compare forecasts of interest rates with nonparametric methods on a range of currencies. Generally it is found that the continuous time model and local linear regression perform the best. The results give further evidence to the empirical results in Saltoglu (Applied Financial Economics, 13, 169-176, 2003).

Suggested Citation

  • K. Ben Nowman & Burak Saltoglu, 2003. "An empirical comparison of interest rates using an interest rate model and nonparametric methods," Applied Economics Letters, Taylor & Francis Journals, vol. 10(10), pages 643-645.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:10:p:643-645
    DOI: 10.1080/1350485032000133318
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    References listed on IDEAS

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    1. Burak Saltoglu, 2003. "Comparing forecasting ability of parametric and non-parametric methods: an application with Canadian monthly interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 13(3), pages 169-176.
    2. 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..
    3. Nowman, K. Ben & Saltoglu, Burak, 2003. "Continuous time and nonparametric modelling of U.S. interest rate models," International Review of Financial Analysis, Elsevier, vol. 12(1), pages 25-34.
    4. Nowman, K. Ben, 2002. "The volatility of Japanese interest rates: evidence for Certificate of Deposit and Gensaki rates," International Review of Financial Analysis, Elsevier, vol. 11(1), pages 29-38.
    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 1209-1227, July.
    6. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    7. Nowman, K B, 1997. "Gaussian Estimation of Single-Factor Continuous Time Models of the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 52(4), pages 1695-1706, September.
    8. Brennan, Michael J. & Schwartz, Eduardo S., 1979. "A continuous time approach to the pricing of bonds," Journal of Banking & Finance, Elsevier, vol. 3(2), pages 133-155, July.
    9. Episcopos, Athanasios, 2000. "Further evidence on alternative continuous time models of the short-term interest rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(2), pages 199-212, June.
    10. Michael J. Brennan and Eduardo S. Schwartz., 1979. "A Continuous-Time Approach to the Pricing of Bonds," Research Program in Finance Working Papers 85, University of California at Berkeley.
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