Authors
John Driffill, Turalay Kenc, Martin Sola
Publication date
2003
Journal
Available at SSRN 393481
Description
We examine several continuous-time term structure models in which the short rate is subject both to continuous changes and to discrete shifts. Several regime-switching term structure models are developed, with regime-dependence in various combinations of their drift and diffusion parameters. We examine their predictive power. Our empirical analysis suggests that it is important to attempt to specify the switching model correctly: Badly parameterized switching models may not be an improvement (in terms of pricing) over models which do not allow for regime switching, even when there are clear breaks in the data.
Total citations
Scholar articles
J Driffill, T Kenc, M Sola - Available at SSRN 393481, 2003