The present paper explores a class of jump-diffusion models for the Australian shortterm interest rate. The proposed general model incorporates linear mean-reverting drift, time-varying volatility in the form of LEVELS (sensitivity of the volatility to the levels of the short-rates) and...

We estimate and test different continuous-time short-rate models for the UK. The preferred model encompasses both the “level effect” of Chan, Karolyi, Longstaff and Sanders (1992a) and the conditional heteroskedasticity effect of GARCH type models. Our findings suggest that including a GARCH...

We introduce continuous-time models that capture the salient features of the short-term interest rate and remain tractable for asset pricing applications. We extend classical specifications within and outside of the affine class to multi-factor settings with latent variables that are readily...

We propose an analytical approximation of the term structure of interest rates under general diffusion processes of the short-rate and state variables. A method of approximating conditional moments as the solution to a system of ordinary differential equations is applied to the pricing of bonds....

Nonlinear drift models of the short-rate are estimated using data on the short-end of the term structure, where the cross-sectional relation is obtained by an analytical approximation. We find that (i) nonlinear physical drift is not implied unless it is strongly affected by cross-sectional...

This thesis consists of two related parts. In the first part we conduct an empiricalexamination of the dynamics of Australian interest rates of six different maturities,covering the whole yield curve. This direct study of the long rates is quite novel. Weuse maximum likelihood estimation on a...

Motivated by the application to German interest rates, we propose a time‐varying autoregressive model for short‐term and long‐term prediction of time series that exhibit a temporary nonstationary behavior but are assumed to mean revert in the long run. We use a Bayesian formulation to...

In this paper, which is a substantial extension of the earlier essay Björk (2001), we give an overview of some recent work on the geometric properties of the evolution of the forward rate curve in an arbitrage free bond market. The main problems to be discussed are as follows. 1. When is a...