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Estimation of one-, two- and three-factor generalized Vasicek term structure models for Japanese interest rates using monthly panel data

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  • K. Ben Nowman

Abstract

In this article, we estimate one-, two- and three-factor generalized Vasicek interest rate models using Japanese yield curve panel data over the important period 2000 to 2010. The state space form of the model is presented and the Kalman filter applied. The empirical results provide support for the two and three factor models and simulations of the models over the period indicate that the two and three factor models performance tracks the Japanese yield curve.

Suggested Citation

  • K. Ben Nowman, 2011. "Estimation of one-, two- and three-factor generalized Vasicek term structure models for Japanese interest rates using monthly panel data," Applied Financial Economics, Taylor & Francis Journals, vol. 21(14), pages 1069-1078.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:14:p:1069-1078
    DOI: 10.1080/09603107.2011.562165
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    References listed on IDEAS

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    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    3. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
    4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    5. Bikbov, Ruslan & Chernov, Mikhail, 2010. "No-arbitrage macroeconomic determinants of the yield curve," Journal of Econometrics, Elsevier, vol. 159(1), pages 166-182, November.
    6. Date, Paresh & Wang, Chieh, 2009. "Linear Gaussian affine term structure models with unobservable factors: Calibration and yield forecasting," European Journal of Operational Research, Elsevier, vol. 195(1), pages 156-166, May.
    7. repec:hal:journl:peer-00732517 is not listed on IDEAS
    8. Babbs, Simon H. & Nowman, K. Ben, 1999. "Kalman Filtering of Generalized Vasicek Term Structure Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(1), pages 115-130, March.
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    Cited by:

    1. Anne MacKay & Mario V. Wüthrich, 2015. "Best-Estimates in Bond Markets with Reinvestment Risk," Risks, MDPI, vol. 3(3), pages 1-27, July.

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