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Estimating single factor jump diffusion interest rate models

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  • Ghulam Sorwar

Abstract

Empirical studies have demonstrated that behaviour of interest rate processes can be better explained if standard diffusion processes are augmented with jumps in the interest rate process. In this article we examine the performance of both linear and nonlinear one-factor Chan-Karolyi-Longstaff-Sanders (CKLS) model in the presence of jumps. We conclude that empirical features of interest rate not captured by standard diffusion processes are captured by models with jumps and that the linear CKLS model provides sufficient explanation of the data.

Suggested Citation

  • Ghulam Sorwar, 2011. "Estimating single factor jump diffusion interest rate models," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1679-1689.
    • Handle: RePEc:taf:apfiec:v:21:y:2011:i:22:p:1679-1689
    DOI: 10.1080/09603107.2011.591729
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    Cited by:

    1. Somayeh Kokabisaghi & Eric J. Pauwels & Katrien Van Meulder & André B. Dorsman, 2018. "Are These Shocks for Real? Sensitivity Analysis of the Significance of the Wavelet Response to Some CKLS Processes," IJFS, MDPI, vol. 6(3), pages 1-12, September.
    2. Allan Jonathan da Silva & Jack Baczynski, 2024. "Exploring non-analytical affine jump-diffusion models for path-dependent interest rate derivatives," Computational Management Science, Springer, vol. 21(1), pages 1-32, June.

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