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st: CKLS interest rate model estimation


From   "Stephen Knights" <stephenknights@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: CKLS interest rate model estimation
Date   Tue, 6 May 2008 21:46:05 +0100

Dear Statalist members,

Are you aware of any modules within Stata which have been created to
estimate the interest rate model of Chan, Karolyi, Longstaff and
Sanders (Journal of Finance, 1992)?  The model is of the form

r(t) - r(t-1) = [a + b r(t-1)] dt + [f r(t-1) ^ g] dZ

so incorporates level dependence through the g parameter and mean
reversion through the a,b parameters.  The f parameter is commonly
modelled using a GARCH process (although the original CKLS paper
specified a more restrictive process for f, so the model in its usual
formulation incorporates level dependence, mean reversion and GARCH
residuals.

The model can be estimated either using MLE or GMM: I would be
grateful to know if either has been successfully implemented using
Stata in the past.


Regards,
Stephen Knights
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