Interest Rate Modelling: Maximum Likelihood Estimation of One-Factor Short-Rate Models

Kód výsledku v 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>

Výsledek na webu

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DOI - Digital Object Identifier

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Jazyk výsledku

angličtina

Název v původním jazyce

Interest Rate Modelling: Maximum Likelihood Estimation of One-Factor Short-Rate Models

Popis výsledku v původním jazyce

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&apos;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.

Název v anglickém jazyce

Interest Rate Modelling: Maximum Likelihood Estimation of One-Factor Short-Rate Models

Popis výsledku anglicky

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&apos;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.

Druh

D - Stať ve sborníku

CEP obor

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OECD FORD obor

10103 - Statistics and probability

Projekt

<a href="/cs/project/GA18-05631S" target="_blank" >GA18-05631S: Stochastické optimalizační úlohy s endogenní nejistotou</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2019

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název statě ve sborníku

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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Počet stran výsledku

6

Strana od-do

374-379

Název nakladatele

UNIV SOUTH BOHEMIA CESKE BUDEJOVIC, FAC ECONOMICS

Místo vydání

CESKE BUDEJOVICE

Místo konání akce

Ceske Budejovice

Datum konání akce

11. 9. 2019

Typ akce podle státní příslušnosti

EUR - Evropská akce

Kód UT WoS článku

000507570400062