Modeling the Volatility of the Heath-Jarrow-Morton Model: A Multi-Factor GARCH Analysis

Zhou, Anjun

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https://hdl.handle.net/2142/4017 Copy

Description

Title

Modeling the Volatility of the Heath-Jarrow-Morton Model: A Multi-Factor GARCH Analysis

Author(s)

Zhou, Anjun

Issue Date

2000-08

Keyword(s)

• forward rate volatility
• HJM model

Abstract

Based on the nonparametric study of Pearson and Zhou (1999), a parametric HJM model is developed for the forward rate volatility. It allows the volatility of the forward rate with different maturities to react in a different way with the level of forward rate and the forward spread. Specifically, the proposed forward rate volatility function is imbedded into GARCH family models and compared with several widely used HJM volatility specifications. It is shown that the proposed volatility specification performs the best. It is also confirmed that the volatility of forward rate with different maturities depends on the forward rate and the forward spread in a different way.

Publisher

Office for Futures and Options Research, Department of Agricultural Economics, College of Agricultural, Consumer, and Environmental Sciences at the University of Illinois at Urbana-Champaign

Series/Report Name or Number

OFOR Working Paper Series, no. 00-05

Type of Resource

text

Language

en

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http://hdl.handle.net/2142/4017

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