Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

The Estimation of the Heath-Jarrow-Morton Model by Use of Kalman Filtering Techniques
Author(s): Ram Bhar and Carl Chiarella
Date of publication: December 1995
Working paper number: 54
A fairly flexible functional form for the forward rate volatility is applied in the Heath-JarrowMorton model of the term structure of interest rates to reduce the system dynamics to Markovian form. The resulting stochastic dynamlc system is cast into a form suitable for estimation by use of nonlinear filter methodology. The technique is applied to 90 day bank bill and 3 year treasury bond data in the Australian market.
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Published as: Bhar, R. and Chiarella, C., 1997, "The Estimation of the Heath-Jarrow-Morton Model by Use of Kalman Filtering Techniques", in H. Amman et al (eds) Computational Approaches to Economic Problems, Kluwer Academic Publishers, pp. 113-126.
Known citations:

Bhar, R. and Chiarella, C., 1996, "Construction of Zero-Coupon Yield Curve From Coupon Bond Yield Using Australian Data", Working Paper: 70, Finance Discipline Group, University of Technology, Sydney.

Bhar, R. and Chiarella, C., 1997, "Transformation of Heath-Jarrow-Morton Models to Markovian Systems", The European Journal of Finance, 3(1), 1-26.

Bhar, R. and Chiarella, C. 1997, "Interest Rate Futures: Estimation of Volatility Parameters in an Arbitrage-Free Framework", Applied Mathematical Finance, 4(4), 181-199.

Bhar, R. and Chiarella, C., 2006, "Estimation of the Heath-Jarrow-Morton Model Via the Kalman Flter: A Bootstrap Analysis", Working Paper.

Elliott, R. J., Lau, J. W., Maio, H. and Siu, T. K., 2012, "Viterbi-Based Estimation for Markov Switching GARCH Model", Applied Mathematical Finance, 19(3), 219-231.

Gombani, A., Jaschke, S. R. and Runggaldier, W. J., 2005, "A Filtered No Arbitrage Model for Term Structures from Noisy Data", Stochastic Processes and their Applications, 115(3),381-400.

Gombani, A. and Runggaldier, W. J., 2001, "A Filtering Approach to Pricing in Multifactor Term Structure Models", International Journal of Theoretical and Applied Finance, 4(2), 303-320.

Sahut, J. and Mili, M., 2006, "Sensitivity of Interest Rate Caps to the Elasticity of Forward Rate Volatility", International Journal of Business, 11(2), 107-119.