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Corrigendum to “A Gaussian Approach for Continuous Time Models of the Short Term Interest Rate"

Author

Listed:
  • Peter C.B. Phillips

    (Yale University)

  • Jun Yu

    (School of Economics, Singapore Management University)

Abstract

An error is corrected in Yu and Phillips (2001) (Econometrics Journal, 4, 210-224) where a time transformation was used to induce Gaussian disturbances in the discrete time equivalent model. It is shown that the error process in this model is not a martingale and the Dambis, Dubins-Schwarz (DDS) theorem is not directly applicable. However, a detrended error process is a martingale, the DDS theorem is applicable, and the corresponding stopping time correctly induces Gaussianity. We show that the two stopping time sequences differ by O(a2), where a is the pre-specified normalized timing constant.

Suggested Citation

  • Peter C.B. Phillips & Jun Yu, 2010. "Corrigendum to “A Gaussian Approach for Continuous Time Models of the Short Term Interest Rate"," Working Papers 18-2010, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:18-2010
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    File URL: https://mercury.smu.edu.sg/rsrchpubupload/17836/py_corr08.pdf
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    Keywords

    Nonlinear Diffusion; Normalizing Transformation; Level Effect; DDS Theorem.;
    All these keywords.

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