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Estimating Single Factor Jump Diffusion Interest Rate Models

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  • Ghulam Sorwar

    (Business School Nottingham University)

Abstract

Recent 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 paper we examine the performance of both linear and non-linear one factor CKLS model in the presence of jumps. We conclude that empirical features of interest rates 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, 2005. "Estimating Single Factor Jump Diffusion Interest Rate Models," Computing in Economics and Finance 2005 56, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:56
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    References listed on IDEAS

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    More about this item

    Keywords

    term structure; jumps; Bayesian; MCMC;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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