Time-dependent diffusion models for term structure dynamics

Jianqing Fan Jiancheng Jiang Chunming Zhang Zhenwei Zhou

Statistics Theory and Methods mathscidoc:1912.43293

Statistica Sinica, 965-992, 2003.10
In an effort to capture the time variation on the instantaneous return and volatility functions, a family of time-dependent diffusion processes is introduced to model the term structure dynamics. This allows one to examine how the instantaneous return and price volatility change over time and price level. Nonparametric techniques, based on kernel regression, are used to estimate the time-varying coefficient functions in the drift and diffusion. The newly proposed semiparametric model includes most of the well-known short-term interest rate models, such as those proposed by Cox, Ingersoll and Ross (1985) and Chan, Karolyi, Longstaff and Sanders (1992). It can be used to test the goodness-of-fit of these famous time-homogeneous short rate models. The newly proposed method complements the time-homogeneous nonparametric estimation techniques of Stanton (1997) and Fan and Yao (1998), and is shown through
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  title={Time-dependent diffusion models for term structure dynamics},
  author={Jianqing Fan, Jiancheng Jiang, Chunming Zhang, and Zhenwei Zhou},
  booktitle={Statistica Sinica},
Jianqing Fan, Jiancheng Jiang, Chunming Zhang, and Zhenwei Zhou. Time-dependent diffusion models for term structure dynamics. 2003. In Statistica Sinica. pp.965-992. http://archive.ymsc.tsinghua.edu.cn/pacm_paperurl/20191221113530519943853.
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