On a Type I Error of a Random Walk Hypothesis on Interest Rates  [in Japanese] On a Type I Error of a Random Walk Hypothesis on Interest Rates  [in Japanese]

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Abstract

In the present paper, we will establisha law of large numbers for the sample covariance matrixof the forward rates when random walk hypothesis (RWH) on the spot rates holds. The study is motivated by the result in Liu, N.L.(2010) that says the forward rates have much more factors than the stylized belief, and aimed to explain the result as a ``type I error" on RWH. Our result in this paper shows that the number of factors of the forward rates is greater than that of the spot rates but at most twice.

In the present paper, we will establisha law of large numbers for the sample covariance matrixof the forward rates when random walk hypothesis (RWH) on the spot rates holds. The study is motivated by the result in Liu, N.L.(2010) that says the forward rates have much more factors than the stylized belief, and aimed to explain the result as a ``type I error" on RWH. Our result in this paper shows that the number of factors of the forward rates is greater than that of the spot rates but at most twice.

Journal

  • NCTAM papers, National Congress of Theoretical and Applied Mechanics, Japan

    NCTAM papers, National Congress of Theoretical and Applied Mechanics, Japan 59(0), 142-142, 2010

    National Committee for IUTAM

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