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| Author: | Schotman, P. |
| Title: | A Bayesian approach to the empirical valuation of bond options |
| Journal: | Journal of Econometrics
1996 : NOV, VOL. 75:1, p. 183-216 |
| Index terms: | ECONOMETRICS ECONOMICS BAYESIAN STATISTICS |
| Language: | eng |
| Abstract: | In this paper the author proposes and implements a Bayesian procedure for the empirical valuation of bond options given the observed term structure of interest rates, and given assumptions about the time series behavior of the instantaneous spot rate. The Bayesian approach is motivated by the extreme multicollinearity in the cross-sectional data. The multicollinearity is used by some local identification problems in the likelyhood function. These same singularities motivate the choice of prior. |
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