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    Application of maximum likelihood estimation to stochastic short rate models

    Access Status
    Fulltext not available
    Authors
    Fergusson, Kevin
    Platen, E.
    Date
    2015
    Type
    Journal Article
    
    Metadata
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    Citation
    Fergusson, K. and Platen, E. 2015. Application of maximum likelihood estimation to stochastic short rate models. Annals of Financial Economics. 10 (2): Article ID 1550009.
    Source Title
    Annals of Financial Economics
    DOI
    10.1142/S2010495215500098
    ISSN
    2010-4952
    School
    Department of Mathematics and Statistics
    URI
    http://hdl.handle.net/20.500.11937/30371
    Collection
    • Curtin Research Publications
    Abstract

    The application of maximum likelihood estimation is not well studied for stochastic short rate models because of the cumbersome detail of this approach. We investigate the applicability of maximum likelihood estimation to stochastic short rate models. We restrict our consideration to three important short rate models, namely the Vasicek, Cox–Ingersoll–Ross (CIR) and 3/2 short rate models, each having a closed-form formula for the transition density function. The parameters of the three interest rate models are fitted to US cash rates and are found to be consistent with market assessments.

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