The Multifactor Nature of the Volatility of Futures Markets |
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| Authors: | Carl Chiarella Thuy-Duong Tô |
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| Affiliation: | (1) School of Finance and Economics, University of Technology, Broadway NSW2007, Sydney, PO Box 123, Australia;(2) School of Commerce University of Adelaide, Adelaide, SA5005, Australia |
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| Abstract: | This paper estimates a model of interest rate dynamics containing multi-factor Wiener and single-factor Poisson jump volatility components. Data from the highly liquid but short term futures markets are used. The difficult numerical problem of estimating such multi-factor models is resolved by using a genetic algorithm to carry out the optimization procedure. It is established that the multi-factor Wiener volatility components are adequate to model the interest rate dynamics without the need to incorporate Poisson jump components, the existence of which would create difficulties in the practical use of interest rate models. Jel Classification No: C51, C61, E43 |
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| Keywords: | term structure volatility mutlifactor jump Eurodollar futures futures markets genetic algorithm |
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