In this paper we discuss the estimation of the diffusion coefficient in one-factor models for the short rate via non-parametric methods. We test the estimators proposed by Ait-Sahalia (1996), Stanton (1997) and Bandi and Phillips (2003) on Monte Carlo simulations of the Vasicek and CIR model. We show that the Ait-Sahalia estimator is not applicable for values of the mean reversion coefficient typically displayed by interest rate data, while the Stanton and Bandi–Phillips estimators perform better. Each of the three estimators depends crucially on the choice of the bandwidth parameter. Our analysis shows that the estimators give different results for both the data set analysed by Ait-Sahalia (1996) and by Stanton (1997). Finally we show that the data sets used by Ait- Sahalia and Stanton are inherently different and, in particular, that very short-term data exhibit characteristics which are inconsistent with a diffusion.

Reno', R., Roma, A., Schaefer, S. (2006). A Comparison of Alternative Non-parametricEstimators of the Short Rate DiffusionCoefficient. ECONOMIC NOTES, 35(3), 227-252.

A Comparison of Alternative Non-parametricEstimators of the Short Rate DiffusionCoefficient

RENO', ROBERTO;ROMA, ANTONIO;
2006-01-01

Abstract

In this paper we discuss the estimation of the diffusion coefficient in one-factor models for the short rate via non-parametric methods. We test the estimators proposed by Ait-Sahalia (1996), Stanton (1997) and Bandi and Phillips (2003) on Monte Carlo simulations of the Vasicek and CIR model. We show that the Ait-Sahalia estimator is not applicable for values of the mean reversion coefficient typically displayed by interest rate data, while the Stanton and Bandi–Phillips estimators perform better. Each of the three estimators depends crucially on the choice of the bandwidth parameter. Our analysis shows that the estimators give different results for both the data set analysed by Ait-Sahalia (1996) and by Stanton (1997). Finally we show that the data sets used by Ait- Sahalia and Stanton are inherently different and, in particular, that very short-term data exhibit characteristics which are inconsistent with a diffusion.
2006
Reno', R., Roma, A., Schaefer, S. (2006). A Comparison of Alternative Non-parametricEstimators of the Short Rate DiffusionCoefficient. ECONOMIC NOTES, 35(3), 227-252.
File in questo prodotto:
File Dimensione Formato  
RenoRomaSchaefer2006.pdf

non disponibili

Tipologia: Post-print
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 678.51 kB
Formato Adobe PDF
678.51 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11365/26487
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo