The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models
We obtain a result that relates the risk-neutral jump size of interest rates with yield curve data. This function is unobservable; therefore, this result opens a way to estimate the jump size directly from data in the markets together with the risk-neutral drift and jump intensity estimations. Then,...
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| Format: | Article |
| Language: | English |
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Wiley
2015-01-01
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| Series: | Abstract and Applied Analysis |
| Online Access: | http://dx.doi.org/10.1155/2015/805695 |
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| author | L. Gómez-Valle J. Martínez-Rodríguez |
| author_facet | L. Gómez-Valle J. Martínez-Rodríguez |
| author_sort | L. Gómez-Valle |
| collection | DOAJ |
| description | We obtain a result that relates the risk-neutral jump size of interest rates with yield curve data. This function is unobservable; therefore, this result opens a way to estimate the jump size directly from data in the markets together with the risk-neutral drift and jump intensity estimations. Then, we investigate the finite sample performance of this approach with a test problem. Moreover, we analyze the effect of estimating the risk-neutral jump size instead of assuming that it is artificially absorbed by the jump intensity, as usual in the interest rate literature. Finally, an application to US Treasury Bill data is also illustrated. |
| format | Article |
| id | doaj-art-a644b1a8b54943a68b16026818b4a8b7 |
| institution | Kabale University |
| issn | 1085-3375 1687-0409 |
| language | English |
| publishDate | 2015-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Abstract and Applied Analysis |
| spelling | doaj-art-a644b1a8b54943a68b16026818b4a8b72025-02-03T06:08:21ZengWileyAbstract and Applied Analysis1085-33751687-04092015-01-01201510.1155/2015/805695805695The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate ModelsL. Gómez-Valle0J. Martínez-Rodríguez1Departamento de Economía Aplicada, Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid, Avenida del Valle de Esgueva 6, 47011 Valladolid, SpainDepartamento de Economía Aplicada, Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid, Avenida del Valle de Esgueva 6, 47011 Valladolid, SpainWe obtain a result that relates the risk-neutral jump size of interest rates with yield curve data. This function is unobservable; therefore, this result opens a way to estimate the jump size directly from data in the markets together with the risk-neutral drift and jump intensity estimations. Then, we investigate the finite sample performance of this approach with a test problem. Moreover, we analyze the effect of estimating the risk-neutral jump size instead of assuming that it is artificially absorbed by the jump intensity, as usual in the interest rate literature. Finally, an application to US Treasury Bill data is also illustrated.http://dx.doi.org/10.1155/2015/805695 |
| spellingShingle | L. Gómez-Valle J. Martínez-Rodríguez The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models Abstract and Applied Analysis |
| title | The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models |
| title_full | The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models |
| title_fullStr | The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models |
| title_full_unstemmed | The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models |
| title_short | The Role of the Risk-Neutral Jump Size Distribution in Single-Factor Interest Rate Models |
| title_sort | role of the risk neutral jump size distribution in single factor interest rate models |
| url | http://dx.doi.org/10.1155/2015/805695 |
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