Interest Rate Modelling And Estimation

The short-term risk free interest rate, one of the most important economic variables, is playing a critical role in pricing other financial products and the management of interest rate risk. With the advance in liberation of the interest rate control in china, the capital demand and supply in financial market is becoming the major determinant factor in the interest rate movement. Since a variety of factors have complicated effects on the capital demand and supply, the interest rate will change more frequently. How to manage interest rate risk is one of the most important topics faced by financial institutions under the marketization of interest rate. Therefore, how to model the dynamics of term structure and forecast the variability of interest rate is a worthwhile field, which has both interested in theoretical and practical meaning.Under the above background, the author use both qualitative description and quantitative methods to study interest rate modeling and estimation. In this dissertation, 1 focus on how to model the dynamics of interest rates, estimate the parameter of the interest rate model, and forecast the interest rate volatility. Pricing the interest rate derivatives is excluded. The dissertation is organized as follows:An introduction and literature review of models are presented in the first part. In chapter 1, the background, research questions and methodology in interest rate term structure are introduced. Then the descriptive methods and the sampling data which are used in this dissertation are explained. Finally, six items of innovations in this dissertation are summarized and the integrated framework of the paper is depicted. In chapter 2, It is well known that China bond market is divided into two parts: the exchange market and intra bank market. Different participants are restricted in different markets. The Casual Relationship model is applied to analyses the prices and the volumes of the same bond in two different markets. The results show that the prices and the volumes in different markets follow the casual relationship. A review of dynamic models of the term structure is summarized in the chapter 3. In chapter 4, the traditional and contemporaneous estimating methods of the dynamic...