Hurn, A.S. and Lindsay, K.A. (2002) On the specification of the drift and diffusion functions for continuous-time models of the spot interest rate. Oxford Bulletin of Economics and Statistics, 64(5), pp. 547-564. (doi: 10.1111/1468-0084.00277)
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Publisher's URL: http://dx.doi.org/10.1111/1468-0084.00277
Abstract
This paper explores the specification of drift and diffusion functions for continuous-time short-term interest rate models. Various forms for the drift and diffusion of 7-day Eurodollar rates are proposed and then estimated by discrete maximum-likelihood. The results suggest that a nonparametric specification of drift and volatility in terms of orthogonal polynomial expansions is effective in eliminating problems of parameter identification encountered previously. Some evidence is found to support the claim that the drift of the short term interest rate is nonlinear.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Lindsay, Professor Kenneth |
| Authors: | Hurn, A.S., and Lindsay, K.A. |
| Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
| College/School: | College of Science and Engineering > School of Mathematics and Statistics > Mathematics |
| Journal Name: | Oxford Bulletin of Economics and Statistics |
| ISSN: | 0305-9049 |
| ISSN (Online): | 1468-0084 |
| Published Online: | 11 December 2002 |
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