Estimating single factor jump diffusion interest rate models

• Autores: G. Sorwar
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 21, Nº. 22-24, 2011, págs. 1679-1689
• Idioma: inglés
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• Resumen

  • 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.