Mean Square Error Estimation of Short-Term Interest Rate Models by Nonparametric Method

摘要

In the model of short-term interest rate, which is frequently utilized in financial context, there are two unknown functions, drift and diffusion. Several specifications of them are discussed in the literature. However, many researchers have recently shown a preference for nonparametric approach,because it is a comprehensive and simple method. Also, this method makes fully use of information coming from data set. Based on the estimators in the previous paper of the authors, this paper studies further on nonparametric estimation of interest rate model and proposes a novel nonparametric estimators to the drift and diffusion functions in the dynamic short-term interest rate model. At the same time, the order of approximations by the proposed method and some simulations are given as well.