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Indirect robust estimation of the short-term interest rate process

Czellara, Veronika ; Karolyib, G. Andrew ; Ronchetti, Elvezio

In: Journal of Empirical Finance, 2007, vol. 14, no. 4, p. 546-563

We propose Indirect Robust Generalized Method of Moments (IRGMM), a simulationbased estimation methodology, to model short-term interest rate processes. The primary advantage of IRGMM relative to classical estimators of the continuous-time short-rate diffusion processes is that it corrects both the errors due to discretization and the errors due to model misspecification. We apply this approach...