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An Empirical Study on Term Structure Models

Zhang, Lei LU (2012) NEKP01 20122
Department of Economics
Abstract
The purpose of this paper is to test for the goodness-of-fit of the term structure models for the short-term interest rate in Sweden. The study period ranges from February 1, 2002 to March 31, 2012. The maximum likelihood method is used to estimate the models and the likelihood ratio test is applied to perform a comparison among the models. The implication of empirical results can be summarized as four issues: Firstly, the volatility of the short-term interest rate in Sweden follows a GARCH process. Secondly, the interest rate might evolve according to a non-mean-reverting process. Thirdly, the volatility of Swedish short-term interest rate is not heavily dependent of the level of current interest rate. Finally, only the models that allows... (More)
The purpose of this paper is to test for the goodness-of-fit of the term structure models for the short-term interest rate in Sweden. The study period ranges from February 1, 2002 to March 31, 2012. The maximum likelihood method is used to estimate the models and the likelihood ratio test is applied to perform a comparison among the models. The implication of empirical results can be summarized as four issues: Firstly, the volatility of the short-term interest rate in Sweden follows a GARCH process. Secondly, the interest rate might evolve according to a non-mean-reverting process. Thirdly, the volatility of Swedish short-term interest rate is not heavily dependent of the level of current interest rate. Finally, only the models that allows for low-elastic volatility to the current rate can measure Swedish interest rate well. (Less)
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author
Zhang, Lei LU
supervisor
organization
alternative title
Evidence from Sweden
course
NEKP01 20122
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Term Structure, Short-Term Interest Rates, Maximum Likelihood Estimation
language
English
id
3158276
date added to LUP
2012-11-29 14:03:25
date last changed
2012-11-29 14:03:25
@misc{3158276,
  abstract     = {The purpose of this paper is to test for the goodness-of-fit of the term structure models for the short-term interest rate in Sweden. The study period ranges from February 1, 2002 to March 31, 2012. The maximum likelihood method is used to estimate the models and the likelihood ratio test is applied to perform a comparison among the models. The implication of empirical results can be summarized as four issues: Firstly, the volatility of the short-term interest rate in Sweden follows a GARCH process. Secondly, the interest rate might evolve according to a non-mean-reverting process. Thirdly, the volatility of Swedish short-term interest rate is not heavily dependent of the level of current interest rate. Finally, only the models that allows for low-elastic volatility to the current rate can measure Swedish interest rate well.},
  author       = {Zhang, Lei},
  keyword      = {Term Structure,Short-Term Interest Rates,Maximum Likelihood Estimation},
  language     = {eng},
  note         = {Student Paper},
  title        = {An Empirical Study on Term Structure Models},
  year         = {2012},
}