The SR Approach: a new Estimation Method for Non-Linear and Non-Gaussian Dynamic Term Structure Models

Martin Møller Andreasen, Bent Jesper Christensen

    Research output: Working paper/Preprint Working paperResearch

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    Abstract

    This paper suggests a new and easy approach to estimate linear and non-linear dynamic term
    structure models with latent factors. We impose no distributional assumptions on the factors and
    they may therefore be non-Gaussian. The novelty of our approach is to use many observables (yields
    or bonds prices) in the cross-section dimension. An important bene…t of using many observables
    in each time period is that the latent factors can be estimated quite accurately using standard
    regressions, and that parameters can be estimated by standard moment matching methods.
    Original languageEnglish
    Place of publicationAarhus
    PublisherInstitut for Økonomi, Aarhus Universitet
    Number of pages62
    Publication statusPublished - 2010

    Keywords

    • Bond data, GMM, Non-linear filtering, Non-linear least squares, Missing observations, SMM

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