NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Robert Kimmel

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Working Papers and Chapters

June 2004Maximum Likelihood Estimation of Stochastic Volatility Models
with Yacine Ait-Sahalia: w10579
We develop and implement a new method for maximum likelihood estimation in closed-form of stochastic volatility models. Using Monte Carlo simulations, we compare a full likelihood procedure, where an option price is inverted into the unobservable volatility state, to an approximate likelihood procedure where the volatility state is replaced by the implied volatility of a short dated at-the-money option. We find that the approximation results in a negligible loss of accuracy. We apply this method to market prices of index options for several stochastic volatility models, and compare the characteristics of the estimated models. The evidence for a general CEV model, which nests both the affine model of Heston (1993) and a GARCH model, suggests that the elasticity of variance of volatility lie...
December 2002Estimating Affine Multifactor Term Structure Models Using Closed-Form Likelihood Expansions
with Yacine Aït-Sahalia: t0286
We develop and implement a technique for closed-form maximum likelihood estimation (MLE) of multifactor affine yield models. We derive closed-form approximations to likelihoods for nine Dai and Singleton (2000) affine models. Simulations show our technique very accurately approximates true (but infeasible) MLE. Using US Treasury data, we estimate nine affine yield models with different market price of risk specifications. MLE allows non-nested model comparison using likelihood ratio tests; the preferred model depends on the market price of risk. Estimation with simulated and real data suggests our technique is much closer to true MLE than Euler and quasi-maximum likelihood (QML) methods.

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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