Seminar
Gaussian Estimation and Forecasting of Multi-Factor Term Structure Models with an Application to Japan and the United Kingdom
Economics
Speaker: | K. Ben Nowman, University of Kent |
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Date: | Saturday 4 March 2000 |
Time: | 16:15 |
Location: | Room 106 Streatam Court |
Further details
In this paper we extend the discrete model first used in empirical finance by Brennan and Schwartz (1979) to estimate their two-factor term structure to estimate other term structure models using the recent assumption used in Nowman (1997) for single factor models. Following Nowman (1997) we use the exact Gaussian estimation methods of Bergstrom (1983, 1985, 1986, 1997) to estimate two factor versions of the CKLS, Vasicek and CIR models. We estimate the models using monthly UK and Japanese interest rate data. Our results indicate that the estimation method works well in practice and that the Vasicek model provides the best fit for Japan and the CIR model for the U.K.