The role of the risk-neutral jump size distribution in single-factor interest rate models (Q1668933)
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scientific article; zbMATH DE number 6929085
| Language | Label | Description | Also known as |
|---|---|---|---|
| English | The role of the risk-neutral jump size distribution in single-factor interest rate models |
scientific article; zbMATH DE number 6929085 |
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The role of the risk-neutral jump size distribution in single-factor interest rate models (English)
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29 August 2018
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Summary: We obtain a result that relates the risk-neutral jump size of interest rates with yield curve data. This function is unobservable; therefore, this result opens a way to estimate the jump size directly from data in the markets together with the risk-neutral drift and jump intensity estimations. Then, we investigate the finite sample performance of this approach with a test problem. Moreover, we analyze the effect of estimating the risk-neutral jump size instead of assuming that it is artificially absorbed by the jump intensity, as usual in the interest rate literature. Finally, an application to US Treasury Bill data is also illustrated.
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