• We are available for your help 24/7
  • Email: info@isindexing.com, submission@isindexing.com


Paper Details

Application of Kalman filter on modelling interest rates

Long H. Vo

Journal Title:Journal of Management Sciences
Abstract


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.

Download