Multi-Factor Cox-Ingersoll-Ross Models of the Term Structure: Estimates and Tests from a Kalman Filter Model

Multi-Factor Cox-Ingersoll-Ross Models of the Term Structure: Estimates and Tests from a Kalman... This paper presents a method for estimating multi-factor versions of the Cox-Ingersoll-Ross (1985b) model of the term structure of interest rates. The fixed parameters in one, two, and three factor models are estimated by applying an approximate maximum likelihood estimator in a state-space model using data for the U.S. treasury market. A nonlinear Kalman filter is used to estimate the unobservable factors. Multi-factor models are necessary to characterize the changing shape of the yield curve over time, and the statistical tests support the case for two and three factor models. A three factor model would be able to incorporate random variation in short term interest rates, long term rates, and interest rate volatility. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Multi-Factor Cox-Ingersoll-Ross Models of the Term Structure: Estimates and Tests from a Kalman Filter Model

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1024736903090
Publisher site
See Article on Publisher Site

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