Gaussian Estimation of Single-Factor Continuous Time Models of The Term Structure of Interest Rates

The practice of estimating the term structure of discount rates

“…Again, the three-month Treasury bill yield is used as the risk-free rate and all returns are converted into de-annualized logarithmic form on monthly and quarterly bases. Calibration of the model is undertaken using the methods of both Nowman (1997) and Chan et al (1992) but only the Chan et al (1992) results are presented here as the results are highly similar irrespective of the method of estimation. I concentrate on monthly generated parameters for nominal returns.…”

A comparison of international short-term rates under no arbitrage condition

“…Using the GMM approach, his empirical results show that no single model can satisfactorily describe the stochastic structures of interest rates for all countries. In some countries, the conditional volatility of interest rates can be very sensitive to the level of interest rates (e.g., France, Holland and the USA), while in others (e.g., Canada, Italy, 1 For example, Marsh and Rosenfeld (1983), Chan, Karolyi, Longstaff, and Saunders (1992), Longstaff and Schwartz (1992), Tse (1995), Nowman (1997Nowman ( ,1998, Vetzal (1997), Bliss and Smith (1998), Ahn and Gao (1999) and Ahn, Dittmar, and Gallant (2002) offer parametric and semi-parametric estimates of the short-term rates. Also, Aït-Sahalia (1996) and Stanton (1997) provide nonparametric tests.…”

Derivative prices from interest rate models: results for Canada, Hong Kong, and United States

“…In addition, CKLS provided a comparison of prices of bond options implied by the historically estimated CKLS specification and some special cases on U.S. data and found significant variations in the call option values. In Nowman (1997), using Gaussian estimation methods of Bergstrom (1983) and an alternative discrete model for estimation, it was shown that the volatility of rates is not highly dependent on the level of rates in the UK compared to the results of CKLS.…”

“…More recently, Nowman and Sorwar (1999) estimated the CKLS model using Nowman (1997) on monthly Euro-currency rates for Australia, Japan, and the UK. Using these estimates, Nowman and Sorwar computed implied prices using the recently developed Box Method by Barone-Adesi, Allegretto, Dinenis, and Sorwar (1997).…”

“…The outline of the paper is as follows: Section 2 introduces the CKLS model, briefly discuses the Box Method of Barone-Adesi et al (1997), and the Gaussian estimation approach of Nowman (1997). The data set used in the study is also presented.…”