Publication: A nonparametric dimension test of the term structure
Loading...
Identifiers
Publication date
2001-03
Defense date
Authors
Advisors
Tutors
Journal Title
Journal ISSN
Volume Title
Publisher
Impact
Export
Abstract
This paper addresses the problem of conducting a nonparametric test of the dimension of the state variable vector in a continuous-time term structure model. The paper shows that a bivariate diffusion function of the short rate process is a sufficient condition for the term structure to be driven by two stochastic factors. Using an easy-to-implement kernel smoothing method the number of state variables can be tested under very unrestrictive assumptions. The results suggest that continuous-time models for the US interest rates should contain at least two stochastic factors.