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Likelihood-based estimation of a semiparametric time-dependent jump diffusion model of the short-term interest rate

  • Tianshun YanEmail author
  • Yanyong Zhao
  • Wentao Wang
Original Paper
  • 25 Downloads

Abstract

This paper proposes a semiparametric time-dependent jump diffusion model in an effort to capture the dynamic behavior of short-term interest rates. The newly proposed model includes a wide variety of well-known interest rate models, incorporating the time-varying instantaneous return, volatility as well as jump component. The local likelihood density estimation technique together with pseudo likelihood estimation method is employed to estimate the parameters of the model. Some simulations are conducted to examine the statistical performance of our estimators. The proposed procedure is then applied to analyze daily federal funds rate.

Keywords

Local likelihood density estimation Pseudo likelihood estimation Jump diffusion model Bootstrap Short-term interest rate 

Notes

Acknowledgements

The research work is supported by the National Natural Science Foundation of China under Grants No. 11701286, the Natural Science Foundation of Jiangsu Province of China under Grants No. BK20171073, the University Natural Science Foundation of Education Department of Jiangsu Province of China under Grants No. 17KJB110006, the University Philosophy and Social Science Foundation of Education Department of Jiangsu Province of China under Grants No. 2017SJB0350.

Supplementary material

180_2019_875_MOESM1_ESM.zip (8.3 mb)
Supplementary material 1 (zip 8510 KB)

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of FinanceChongqing Technology and Business UniversityChongqingChina
  2. 2.School of Mathematics and StatisticsXi’an Jiaotong UniversityXi’anChina
  3. 3.School of ScienceNanjing Audit UniversityNanjingChina

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