NDLI: Interest rate futures: estimation of volatility parameters in an arbitrage-free framework

Content Provider	IEEE Xplore Digital Library
Author	Bhar, R. Chiarella, C.
Copyright Year	1996
Description	Author affiliation: Sch. of Finance & Econ., Univ. of Technol., Sydney, NSW, Australia (Bhar, R.; Chiarella, C.)
Abstract	Hedging interest rate exposures using interest rate futures contracts requires some knowledge of the volatility function of the interest rates. Use of historical data as well as interest rate options like caps and swaptions to estimate this volatility function, have been proposed in the literature. The interest rate futures price is modelled within an arbitrage-free framework for a volatility function which includes a stochastic variable, the instantaneous spot interest rate. The resulting system is expressed in a state space form which is solved using an extended Kalman filter. The technique is applied to short-term interest rate futures contracts trading on the Sydney Futures Exchange as well as on the Tokyo International Financial Futures Exchange. The residual diagnostics indicate suitability of the model and the bootstrap resampling technique is used to obtain small sample properties of the parameters of the volatility function.
Starting Page	168
Ending Page	182
File Size	1012382
Page Count	15
File Format	PDF
ISBN	0780332369
DOI	10.1109/CIFER.1996.501842
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	1996-03-24
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Economic indicators Parameter estimation Forward contracts Stochastic processes Portfolios Filtering algorithms Finance State-space methods Filters Tires
Content Type	Text
Resource Type	Article

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