Enhancing Estimation for Interest Rate Diffusion Models With Bond Prices
研究了如何利用债券价格信息改进利率扩散模型的参数估计，特别是漂移参数，并通过模拟和实际数据验证了方法的有效性。
We consider improving estimating parameters of diffusion processes for interest rates by incorporating information in bond prices. This is designed to improve the estimation of the drift parameters, which are known to be subject to large estimation errors. It is shown that having the bond prices together with the short rates leads to more efficient estimation of all parameters for the interest rate models. It enhances the estimation efficiency of the maximum likelihood estimation based on the interest rate dynamics alone. The combined estimation based on the bond prices and the interest rate dynamics can also provide inference to the risk premium parameter. Simulation experiments were conducted to confirm the theoretical properties of the estimators concerned. We analyze the overnight Fed fund rates together with the U.S. Treasury bond prices. Supplementary materials for this article are available online.