The Statistical And Economic Role of Jumps in Continuous - Time Interest Rate Models  

Oleh:

Johannes, Michael

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 59 no. 1 (Feb. 2004), page 227-260.
Topik: interest rate; volatility; interest rates; economic models; s tudies
Fulltext: p 227.pdf (481.37KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

The statistical and economic role of jumps in continuous - time interest rate models is examined. A new procedure is developed to test for jump-induced misspecification and results provide strong evidence for the presence of jumps. A flexible jump - diffusion model is proposed and estimated to quantify the statistical role of jumps in interest rates. The connection between jumps and macroeconomic news arrivals is analyzed. An exploration of how jumps affect the pricing of bonds and some simple interest rate derivatives is presented. Results indicate that none of the diffusion models can generate nonnormalities consistent with those of observed Treasury rates. The results, combined with the anecdotal evidence linking jumps and macroeconomic events, point to the importance for formally estimating models with jumps. Estimation results indicate that jumps play a dominant role in interest rate dynamics.

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