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Level Dependence in Volatility in Linear-Rational Term Structure Models
The degree of level dependence in interest rate volatility is analysed in the linearrational term structure model. The linear-rational square-root (LRSQ) model, where level dependence is set a priori, is compared to a specification where the factor process follows CEV-type dynamics which allows a mo...
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| Format: | Thesis |
| Language: | English |
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African Institute of Financial Markets and Risk Management
2020
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| _version_ | 1867613342460280832 |
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| access_status_str | Open Access |
| author | Ramnarayan, Kalind |
| author2 | Backwell, Alex |
| author_browse | Backwell, Alex Ramnarayan, Kalind |
| author_facet | Backwell, Alex Ramnarayan, Kalind |
| author_sort | Ramnarayan, Kalind |
| collection | Thesis |
| description | The degree of level dependence in interest rate volatility is analysed in the linearrational term structure model. The linear-rational square-root (LRSQ) model, where level dependence is set a priori, is compared to a specification where the factor process follows CEV-type dynamics which allows a more flexible degree of level dependence. Parameters are estimated using an unscented Kalman filter in conjunction with quasi-maximum likelihood. An extended specification for the state price density process is required to ensure reliable parameter estimates. The empirical analysis indicates that the LRSQ model generally overestimates level dependence. Although the CEV specification captures the degree of level dependence in volatility more accurately, it has a trade-off with analytical tractability. The optimal specification, therefore, depends on the type of model implementation and general economic conditions. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/31207 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:34:36.552Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2020 |
| publishDateRange | 2020 |
| publishDateSort | 2020 |
| publisher | African Institute of Financial Markets and Risk Management |
| publisherStr | African Institute of Financial Markets and Risk Management |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/31207 Level Dependence in Volatility in Linear-Rational Term Structure Models Ramnarayan, Kalind Backwell, Alex Mathematical Finance The degree of level dependence in interest rate volatility is analysed in the linearrational term structure model. The linear-rational square-root (LRSQ) model, where level dependence is set a priori, is compared to a specification where the factor process follows CEV-type dynamics which allows a more flexible degree of level dependence. Parameters are estimated using an unscented Kalman filter in conjunction with quasi-maximum likelihood. An extended specification for the state price density process is required to ensure reliable parameter estimates. The empirical analysis indicates that the LRSQ model generally overestimates level dependence. Although the CEV specification captures the degree of level dependence in volatility more accurately, it has a trade-off with analytical tractability. The optimal specification, therefore, depends on the type of model implementation and general economic conditions. 2020-02-20T12:28:45Z 2020-02-20T12:28:45Z 2019 2020-02-14T09:39:09Z Master Thesis Masters MPhil http://hdl.handle.net/11427/31207 eng application/pdf African Institute of Financial Markets and Risk Management Faculty of Commerce |
| spellingShingle | Mathematical Finance Ramnarayan, Kalind Level Dependence in Volatility in Linear-Rational Term Structure Models |
| thesis_degree_str | Master's |
| title | Level Dependence in Volatility in Linear-Rational Term Structure Models |
| title_full | Level Dependence in Volatility in Linear-Rational Term Structure Models |
| title_fullStr | Level Dependence in Volatility in Linear-Rational Term Structure Models |
| title_full_unstemmed | Level Dependence in Volatility in Linear-Rational Term Structure Models |
| title_short | Level Dependence in Volatility in Linear-Rational Term Structure Models |
| title_sort | level dependence in volatility in linear rational term structure models |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/31207 |
| work_keys_str_mv | AT ramnarayankalind leveldependenceinvolatilityinlinearrationaltermstructuremodels |