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The effects of different parameterizations of Markov-switching in a CIR model of bond pricing

Driffill, John and Kenc, T. and Sola, Martin and Spagnolo, F. (2009) The effects of different parameterizations of Markov-switching in a CIR model of bond pricing. Studies in Nonlinear Dynamics & Econometrics 13 (1), ISSN 1081-1826.

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Official URL: http://dx.doi.org/10.2202/1558-3708.1490

Abstract

We examine several discrete-time versions of the Cox, Ingersoll and Ross (CIR) model for the term structure, in which the short rate is subject to discrete shifts. Our empirical analysis suggests that careful consideration of which parameters of the short-term interest rate equation that are allowed to be switched is crucial. Ignoring this issue may result in a parameterization that produces no improvement (in terms of bond pricing) relative to the standard CIR model, even when there are clear breaks in the data.

Item Type: Article
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 28 Jan 2011 14:32
Last Modified: 17 Jun 2013 10:47
URI: http://eprints.bbk.ac.uk/id/eprint/1992

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