Asymmetry and Long Memory in the Dynamics of Interest Rate Volatility
Other Title
短期利率波動度動態中的不對稱與長記憶現象
Resource
期貨與選擇權學刊, 1(2), 109-132
Journal
Journal of Futures and Options
Journal Volume
1
Journal Issue
2
Pages
109-131
Date Issued
2008-12
Author(s)
Pei-Shih Weng
Abstract
The conditionally heteroskedastic volatility effect in the short-rate volatility process has been broadly investigated, and the long memory phenomena has attracted a lot of attentions, too. However, these two effects have never been involved together to model the dynamics of short-rate volatility. We introduce an asymmetry and long memory conditional variance model, FIEGARCH, to model the dynamics of short-term interest rate volatility on three -month U.S. Treasury bills. By finding significant estimates, we recognize the necessity of the asymmetric volatility function with the long memory property. Our results also show that non-linearity is not a necessary fact for the short-rate drift, instead, the asymmetric specification plays an important role in the mean function. Finally, according to the comparison for the prediction of the volatility dynamics, the FIEGARCH shows better forecasting ability, especially for a monthly frequency.
Type
journal article