Working paper
Financial Signal Processing: A Self Calibrating Model
Working Papers (Federal Reserve Bank of Chicago), Vol.WP 2000-21
Federal Reserve Bank of Chicago
09/2000
Abstract
Previous work on multifactor term structure models has proposed that the short rate process is a function of some unobserved diffusion process. The authors consider a model in which the short rate process is a function of a Markov chain which represents the 'state of the world'. This enables us to obtain explicit expressions for the prices of zero-coupon bonds and other securities. Discretizing their model allows the use of signal processing techniques from Hidden Markov Models. This means they can estimate not only the unobserved Markov chain but also the parameters of the model, so the model is self-calibrating. The estimation procedure is tested on a selection of U.S. Treasury bills and bonds.
Details
- Title: Subtitle
- Financial Signal Processing: A Self Calibrating Model
- Creators
- Robert J ElliottWilliam C HunterBarbara M Jamieson
- Resource Type
- Working paper
- Publication Details
- Working Papers (Federal Reserve Bank of Chicago), Vol.WP 2000-21
- Publisher
- Federal Reserve Bank of Chicago; Chicago, Illinois
- Number of pages
- 26 pages
- Language
- English
- Date posted
- 09/2000
- Academic Unit
- Finance
- Record Identifier
- 9984963129302771
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