Estimating an affine term structure model of interest rates with correlated noise.
Kalman filtering for the affine term structure model of interest rates is typically applied under the assumption of white noise. However, correlated noise frequently occurs during actual data processing. The accuracy and reliability of the filter are compromised if the correlated noise is assumed to...
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| Format: | Article |
| Language: | English |
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Public Library of Science (PLoS)
2025-01-01
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| Series: | PLoS ONE |
| Online Access: | https://doi.org/10.1371/journal.pone.0318076 |
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| _version_ | 1850040516118315008 |
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| author | Shu Wu Rende Li |
| author_facet | Shu Wu Rende Li |
| author_sort | Shu Wu |
| collection | DOAJ |
| description | Kalman filtering for the affine term structure model of interest rates is typically applied under the assumption of white noise. However, correlated noise frequently occurs during actual data processing. The accuracy and reliability of the filter are compromised if the correlated noise is assumed to be white noise. This paper develops a measurement expansion scheme for the affine term structure model based on the whitening properties of the Kalman filter, enabling latent factor estimation under the general assumption of correlated noise. The simulation results indicate that the estimation based on the measurement expansion scheme achieves higher accuracy compared to the traditional method. |
| format | Article |
| id | doaj-art-c4e08f74f41a4dc08a18b76d74aae277 |
| institution | DOAJ |
| issn | 1932-6203 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | Public Library of Science (PLoS) |
| record_format | Article |
| series | PLoS ONE |
| spelling | doaj-art-c4e08f74f41a4dc08a18b76d74aae2772025-08-20T02:56:05ZengPublic Library of Science (PLoS)PLoS ONE1932-62032025-01-01202e031807610.1371/journal.pone.0318076Estimating an affine term structure model of interest rates with correlated noise.Shu WuRende LiKalman filtering for the affine term structure model of interest rates is typically applied under the assumption of white noise. However, correlated noise frequently occurs during actual data processing. The accuracy and reliability of the filter are compromised if the correlated noise is assumed to be white noise. This paper develops a measurement expansion scheme for the affine term structure model based on the whitening properties of the Kalman filter, enabling latent factor estimation under the general assumption of correlated noise. The simulation results indicate that the estimation based on the measurement expansion scheme achieves higher accuracy compared to the traditional method.https://doi.org/10.1371/journal.pone.0318076 |
| spellingShingle | Shu Wu Rende Li Estimating an affine term structure model of interest rates with correlated noise. PLoS ONE |
| title | Estimating an affine term structure model of interest rates with correlated noise. |
| title_full | Estimating an affine term structure model of interest rates with correlated noise. |
| title_fullStr | Estimating an affine term structure model of interest rates with correlated noise. |
| title_full_unstemmed | Estimating an affine term structure model of interest rates with correlated noise. |
| title_short | Estimating an affine term structure model of interest rates with correlated noise. |
| title_sort | estimating an affine term structure model of interest rates with correlated noise |
| url | https://doi.org/10.1371/journal.pone.0318076 |
| work_keys_str_mv | AT shuwu estimatinganaffinetermstructuremodelofinterestrateswithcorrelatednoise AT rendeli estimatinganaffinetermstructuremodelofinterestrateswithcorrelatednoise |