Advances in Economics and Business Vol. 2(5), pp. 206 - 213
DOI: 10.13189/aeb.2014.020505
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A Study of Alternative Single Factor Short Rate Models: Evidence from United Kingdom (1975-2010)


Romora Edward Sitorus *
Sampoerna School of Business, Universitas Siswa Bangsa Internasional, Building D Mulia Business Park, Jl. Letjen MT. Haryono Kav. 58-60, Jakarta, Indonesia, 12780

ABSTRACT

This study reviews and compares the performance of alternative short rate models for one-month UK interbank rate from 1 January 1975 to 1 January 2010 using Generalized Method of Moments (GMM). Controlling for structural break in the data set, this study finds mixed conclusion about the best single factor short rate model. The result also shows that the more restricted model is not preferable to the less restricted one. Moreover, the volatility factor plays more important role than the drift factor in explaining the dynamics of UK short rates.

KEYWORDS
Short Rate, Interest Rate Modelling, Structural Break, Generalized Methods of Moments

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Romora Edward Sitorus , "A Study of Alternative Single Factor Short Rate Models: Evidence from United Kingdom (1975-2010)," Advances in Economics and Business, Vol. 2, No. 5, pp. 206 - 213, 2014. DOI: 10.13189/aeb.2014.020505.

(b). APA Format:
Romora Edward Sitorus (2014). A Study of Alternative Single Factor Short Rate Models: Evidence from United Kingdom (1975-2010). Advances in Economics and Business, 2(5), 206 - 213. DOI: 10.13189/aeb.2014.020505.