Take Action

Home | Faculty & Research Overview | Research

Research Details

Estimating Continuous Time Stochastic Volatility Models of the Short Term Interest Rate, Journal of Econometrics

Abstract

We obtain consistent parameter estimates of continuous-time stochastic volatility diffusions for the U.S. risk-free short-term interest rate, sampled weekly over 1954-1995, using the Efficient Method of Moments procedure of Gallant and Tauchen. The preferred model displays mean reversion and incorporates 'level effects' and stochastic volatility in the diffusion function. Extensive diagnostics indicate that the Cox-Ingersoll-Ross model with an added stochastic volatility factor provides a good characterization of the short rate process. Further, they suggest that recently proposed GARCH models fail to approximate the discrete-time short rate dynamics, while 'Level-EGARCH' models perform reasonably well.

Type

Article

Author(s)

Torben Andersen, Tim Bollerslev

Date Published

1997

Citations

Andersen, Torben, and Tim Bollerslev. 1997. Estimating Continuous Time Stochastic Volatility Models of the Short Term Interest Rate. Journal of Econometrics. 77(2): 343-377.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action