Arbeitspapier
Which model for the Italian interest rates?
In the recent years, di usion models for interest rates became very popular. In this paper, we try to do a selection of a suitable diffusion model for the Italian interest rates. Our data set is given by the yields on three-month BOT, from 1981 to 2001, for a total of 470 observations. We investigate among stochastic volatility models, paying more attention to a ne models. Estimating diffusion models via maximum likelihood,which would lead to effciency, is usually unfeasible since the transition density is not available. Recently it has been proposed a method of moments which gains full effciency, hence its name of Effcient Method of Moments (EMM); it selects the moments as the scores of an auxiliary model, to be computed via simulation,thus EMM is suitable to di usions whose transition density is unknown, but which are convenient to simulate. The auxiliary model is selected among a family of densities which spans the density space. As a by-product, EMM provides diagnostics which are easy to compute and to interpret. We find evidence that one-factor models are rejected, while a logarithmic specification of the volatility provides the best t to the data, in agreement with the ndings on U.S. data. Moreover, we provide evidence that this model allows a more exible representation of the yield curve.
- Language
-
Englisch
- Bibliographic citation
-
Series: LEM Working Paper Series ; No. 2002/02
- Classification
-
Wirtschaft
- Subject
-
estimation by simulation
method of moments
stochastic differential equations
diffusions
interest rate term structure
yield curve
Zinsstruktur
Theorie
Italien
Statistische Verteilung
- Event
-
Geistige Schöpfung
- (who)
-
Gentile, Monica
Renò, Roberto
- Event
-
Veröffentlichung
- (who)
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Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)
- (where)
-
Pisa
- (when)
-
2002
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gentile, Monica
- Renò, Roberto
- Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)
Time of origin
- 2002
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