Abstract
A parameter estimation method, called PMCMC in this paper, is proposed to estimate a continuous-time model of the term structure of interests under Markov regime switching and jumps. There is a closed form solution to term structure of interest rates under Markov regime. However, the model is extended to be a CKLS model with non-closed form solutions which is a typical nonlinear and non-Gaussian state-space model(SSM) in the case of adding jumps. Although the difficulty of parameter estimation greatly prevents from researching models, we prove that the nonlinear and non-Gaussian state-space model has better performances in studying volatility. The method proposed in this paper will be implemented in simulation and empirical study for SHIBOR. Empirical results illustrate that the PMCMC algorithm has powerful advantages in tackling the models.
Supported by National Natural Science Foundation of China (71471075), Fundamental Research Funds for the Central University (19JNLH09) and Humanities and Social Sciences Foundation of Ministry of Education, China (14YJAZH052)
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- Could the Stock Market Adjust Itself? An Empirical Study Based on Mean Reversion Theory
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