The Estimation of the Heath-Jarrow-Morton Model by Use of Kalman Filtering Techniques
U. of Technology, Sydney Finance and Economics Working Paper No. 54
23 Pages Posted: 21 Feb 2006
Date Written: December 1995
Abstract
A fairly flexible functional form for the forward rate volatility is applied in the Heath-Jarrow-Morton model of the term structure of interest rates to reduce the system dynamics to Markovian form. The resulting stochastic dynamic system is cast into a form suitable for estimation by use of nonlinear filtering methodology. The technique is applied to 90-day bank bill and 3-year treasury bond data in the Australian market.
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