Mean reversion and the volatility of interest rates: Essays on the Monte-Carlo simulation and empirical studies based on different sampling frequencies.
Item
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Title
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Mean reversion and the volatility of interest rates: Essays on the Monte-Carlo simulation and empirical studies based on different sampling frequencies.
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Identifier
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AAI3047270
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identifier
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3047270
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Creator
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Tanarugsachock, Tana.
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Contributor
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Adviser: Temisan Terence Agbeyegbe
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Date
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2002
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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This dissertation consists of five chapters. The first chapter is the introduction to this dissertation. It covers the importance of the term structure on financial markets as the price structure of most financial products are related directly to this interest rate. The second chapter is the literature review of various studies that have been done during the past twenty years. As we know that the continuous-time finance has emerged as a very important tool gearing towards new facets of research challenged. We look at various estimation methods that were introduced to capture dynamics of the term structure. Researchers have introduced many new statistical methods, yet there is no concensus on the best fitting model. One important issue is the insignificance of the mean reversion parameter of the interest rate. In the third chapter, we discuss the Monte-Carlo study of the interest rate process, its mean reversion, and its volatility elasticity parameters. We examine the small sample properties of estimators of the mean reversion and the elasticity of the volatility with respect to the level of the interest rates. We show that the maximum likelihood estimation methodology is a very crucial process to estimate parameters and evaluate statistical inferences. Ignoring the information on data frequency can lead to potential serious issues of financial mismanagement. We know that short-term and long-term traders have different views in their strategies. We show how to estimate these parameters correctly and show the comparison between the correct and the incorrect specifications of the maximum likelihood estimators. By taking into consideration the aggregation of data, we can correct the biases and can obtain the correct inferences. Results show that the absolute size of the mean reversion parameter does not vary as the aggregation of data changes. The volatility parameters, however, depend on the level of aggregation. Chapter four is the empirical study using the Euro Dollar deposit rate data. Empirical results concur with the Monte-Carlo study. Chapter five shows the conclusion of this dissertation.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
