The jump component of the volatility structure of interest rate futures markets: An international comparison
✍ Scribed by Carl Chiarella; Thuy-Duong Tô
- Publisher
- John Wiley and Sons
- Year
- 2003
- Tongue
- English
- Weight
- 233 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0270-7314
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✦ Synopsis
Abstract
We propose a generalization of the Shirakawa (1991) model to capture the jump component in fixed‐income
markets. The model is formulated under the Heath, Jarrow, & Morton (1992) framework, and allows the presence
of a Wiener noise and a finite number of Poisson noises, each associated with a time deterministic volatility function. We derive the evolution of the
futures price and use this evolution to estimate the model parameters via the likelihood transformation technique of Duan (1994). We apply the method to the short‐term futures contracts traded on CME, SFE, LIFFE, and TIFFE, and find that
each market is characterized by very different behavior. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1125–1158, 2003