| 1 Application of Kalman Filter on modelling interest rates, Long H. Vo This study aims to test the feasibility of using a data set of 90-day bank bill forward rates from the Australian market to predict spot interest rates. To achieve this goal I utilized the application of Kalman Filter in a state space model with time-varying state variable. It is documented that in the case of short-term interest rates,the state space model yields robust predictive power. In addition, this predictive power of implied forward rate is heavily impacted by the existence of a time-varying risk premium in the term structure. |
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| 2 Application of Kalman filter on modelling interest rates, Long H. Vo This study aims to test the feasibility of using a data set of 90-day bank bill forward rates from the Australian market to predict spot interest rates. To achieve this goal I utilized the application of Kalman filter in a state space model with timevarying state variable. It is documented that in the case of short-term interest rates,the state space model yields robust predictive power. In addition, this predictive power of implied forward rate is heavily impacted by the existence of a time-varying risk premium in the term structure. |