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The Stochastic Interest Rate Risk Measurement Based on Nonparametric Estimation Method

In: Proceedings of 20th International Conference on Industrial Engineering and Engineering Management

Author

Listed:
  • Jing-jing Li

    (Tianjin University)

  • Bao-chen Yang

    (Tianjin University)

Abstract

There are many different types of the term structure of interest rate. The estimation methods of these models are usually complex. These problems increase the use-cost of the stochastic interest rate risk measurement and reduce the practicability, correctness and stability of immunization performance. Under Heath–Jarrow-Morton framework, we use nonparametric method to estimate the stochastic durations in order to reduce the influence of model specification error. The nonparametric estimation improves the immunization efficiency of the stochastic duration-matching method. The empirical results show that the method proposed in this paper has more accuracy immunization effect to the interest rate risk.

Suggested Citation

  • Jing-jing Li & Bao-chen Yang, 2013. "The Stochastic Interest Rate Risk Measurement Based on Nonparametric Estimation Method," Springer Books, in: Ershi Qi & Jiang Shen & Runliang Dou (ed.), Proceedings of 20th International Conference on Industrial Engineering and Engineering Management, edition 127, pages 667-676, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-40072-8_67
    DOI: 10.1007/978-3-642-40072-8_67
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