Interest Rate Modelling: Maximum Likelihood Estimation of One-Factor Short-Rate Models
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F19%3A10419113" target="_blank" >RIV/00216208:11320/19:10419113 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Alternative languages
Result language
angličtina
Original language name
Interest Rate Modelling: Maximum Likelihood Estimation of One-Factor Short-Rate Models
Original language description
The maximum likelihood method is known to be efficient at estimating fully parametric models. One-factor short-rate models belong to this class, but surprisingly the maximum likelihood method is not extensively used for estimating them. We believe it is a consequence of the current method's failure to determine the value of the short rate without justifying the calculation procedure, which often leads to a poor fit of the observed curve, making it difficult to interpret. In this paper, we propose a way to consider all observed yields at one time and extract the value of the short rate jointly from the entire yield curve. This could be done thanks to a general description of the construction of the likelihood function of a time series of observed yields. The method identifies the models under the real-world measure and hence it is suited not only for pricing, but also for prediction of interest rates. We illustrate the use of such an approach on the popular Hull - White model.
Czech name
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Czech description
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Classification
Type
D - Article in proceedings
CEP classification
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OECD FORD branch
10103 - Statistics and probability
Result continuities
Project
<a href="/en/project/GA18-05631S" target="_blank" >GA18-05631S: Stochastic optimization problems with endogenous uncertainty</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2019
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Article name in the collection
37TH INTERNATIONAL CONFERENCE ON MATHEMATICAL METHODS IN ECONOMICS 2019
ISBN
978-80-7394-760-6
ISSN
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e-ISSN
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Number of pages
6
Pages from-to
374-379
Publisher name
UNIV SOUTH BOHEMIA CESKE BUDEJOVIC, FAC ECONOMICS
Place of publication
CESKE BUDEJOVICE
Event location
Ceske Budejovice
Event date
Sep 11, 2019
Type of event by nationality
EUR - Evropská akce
UT code for WoS article
000507570400062