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Author: | Lin, B-H. Yeh, S-K. |
Title: | Jump-diffusion interest rate process: An empirical examination |
Journal: | Journal of Business Finance and Accounting
1999 : SEP/OCT, VOL. 26:7-8, p. 967-995 |
Index terms: | Models Interest rates USA |
Language: | eng |
Abstract: | A jump-diffusion process, which is a mixture of an O-U process used by Vasicek (1977) and a compound Poisson jump process, for the term structure of interest rates, is investigated. The results show that when the short-term interest rate is low, both models predict an upward sloping term structure, with the jump-diffusion model fitting the actual term structure quite well and the Vasicek model overestimating significantly. When the short-term interest rate is high, both models predict a downward sloping term structure, with the jump-diffusion model underestimating the actual term structure more significantly than the Vasicek model. |
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