Estimation of Affine Term Structure Models with Spanned Or Unspanned Stochastic Volatility
Author | : Drew Creal |
Publisher | : |
Total Pages | : 61 |
Release | : 2017 |
ISBN-10 | : OCLC:1305540251 |
ISBN-13 | : |
Rating | : 4/5 (51 Downloads) |
Download or read book Estimation of Affine Term Structure Models with Spanned Or Unspanned Stochastic Volatility written by Drew Creal and published by . This book was released on 2017 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop new procedures for maximum likelihood estimation of affine term structure models with spanned or unspanned stochastic volatility. Our approach uses linear regression to reduce the dimension of the numerical optimization problem yet it produces the same estimator as maximizing the likelihood. It improves the numerical behavior of estimation by eliminating parameters from the objective function that cause problems for conventional methods. We find that spanned models capture the cross-section of yields well but not volatility while unspanned models fit volatility at the expense of fitting the cross-section.