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Journal Articles Journal of Empirical Finance Year : 2007

Indirect robust estimation of the short-term interest rate process

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G. Andrew Karolyi
  • Function : Author
Elvezio Ronchetti
  • Function : Author

Abstract

We propose Indirect Robust Generalized Method of Moments (IRGMM), a simulation-based estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it corrects both the errors due to discretization and the errors due to model misspecification. We apply this approach to monthly US risk free rates and to various monthly Eurocurrency rates and provide extensive evidence of its predictive performances in a variety of settings.

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hal-00463251 , version 1 (11-03-2010)

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Veronika Czellar, G. Andrew Karolyi, Elvezio Ronchetti. Indirect robust estimation of the short-term interest rate process. Journal of Empirical Finance, 2007, Vol.14, n°4, pp.546-563. ⟨10.1016/j.jempfin.2006.09.004⟩. ⟨hal-00463251⟩

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