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dc.contributor.authorHin, L.
dc.contributor.authorDokuchaev, Nikolai
dc.date.accessioned2017-01-30T11:49:31Z
dc.date.available2017-01-30T11:49:31Z
dc.date.created2015-10-07T03:43:48Z
dc.date.issued2016
dc.identifier.citationHin, L. and Dokuchaev, N. 2016. Short rate forecasting based on the inference from the CIR model for multiple yield curve dynamics. Annals of Financial Economics. 11 (1): 1650004.
dc.identifier.urihttp://hdl.handle.net/20.500.11937/15379
dc.identifier.doi10.1142/S2010495216500044
dc.description.abstract

In this paper, we propose a strategy to extract the information on the market participants’ expectation of the future short rate from the cross-sectional zero coupon bond prices. In line with the current market practice of building different yield curves for different tenors, we construct multiple one-factor short rate processes to pin down the salient features of the yield curve at different tenors. We represent this information in the form of the Cox–Ingersoll–Ross model implied parameters, and show that this information can be used to forecast the future short rate. This approach of representing the information on the market participants’ consensus in the form of implied model parameters and using these implied parameters for forecasting purposes resembles the approach of representing the market expectation of the underlying asset volatility reflected by stock option prices in the form of implied volatility, and using it to forecast the realized volatility. We illustrate the implementation of this method using historical US STRIPS prices and effective Federal Funds rate.

dc.publisherWorld Scientific Publishing Co.
dc.subjectoptimization
dc.subjectCIR spot rate model
dc.subjectinterest rates
dc.titleShort rate forecasting based on the inference from the CIR model for multiple yield curve dynamics
dc.typeJournal Article
dcterms.source.volumeTBA
dcterms.source.issn2010-4952
dcterms.source.titleAnnals of Financial Economics
curtin.note

Electronic version of an article published as Annals of Financial Economics, Vol. 11, No. 01 (2016), doi: 10.1142/S2010495216500044 © copyright World Scientific Publishing Company, http://www.worldscientific.com/worldscinet/afe

curtin.departmentDepartment of Mathematics and Statistics
curtin.accessStatusOpen access


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