Parameter estimation of parabolic type factor model and empirical study of US treasury bonds

Abstract

In this paper we study the parameter estimation problem for stochastic distributed parameter systems by using the modified maximum likelihood method. More specifically, by using the US treasury bond data, the parameter estimation is performed for the stochastic hyperbolic and parabolic models describing the behavior of the term-structure of the US bond. From the prediction results, we can show that the parabolic factor models work better than the hyperbolic ones. © 2006 International Federation for Information Processing.