- Article

Nowman, K.B. and Saltoglu, B. 2003. Continuous time and nonparametric modelling of U.S. interest rate models. *International Review of Financial Analysis.* 12 (1), pp. 25-34.

Title | Continuous time and nonparametric modelling of U.S. interest rate models |
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Authors | Nowman, K.B. and Saltoglu, B. |

Abstract | In this paper we compare the forecasting performance of different models of interest rates using parametric and nonparametric estimation methods. In particular, we use three popular nonparametric methods, namely, artificial neural networks (ANN), k-nearest neighbour (k-NN), and local linear regression (LL). These are compared with forecasts obtained from two-factor continuous time interest rate models, namely, Chan, Karolyi, Longstaff, and Sanders [CKLS, J. Finance 47 (1992) 1209]; Cos, Ingersoll, and Ross [CIR, Econometrica 53 (1985) 385]; Brennan and Schwartz [BRâSC, J. Financ. Quant. Anal. 15 (1980) 907]; and Vasicek [J. Financ. Econ. 5 (1977) 177]. We find that while the parametric continuous time method, specifically Vasicek, produces the most successful forecasts, the nonparametric k-NN performed well. |

Keywords | Interest rates, Forecasting, Nonparametric, Continuous time |

Journal | International Review of Financial Analysis |

Journal citation | 12 (1), pp. 25-34 |

ISSN | 1057-5219 |

Year | 2003 |

Digital Object Identifier (DOI) | doi:10.1016/S1057-5219(02)00123-0 |

Publication dates | |

Published | 2003 |

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