Cross Sectional Versus Time Series Estimation of Term Structure Models: Empirical Results for the Dutch Bond Market

Posted: 16 Oct 2000

See all articles by Jeroen F.J. de Munnik

Jeroen F.J. de Munnik

De Nederlandsche Bank

Peter C. Schotman

Maastricht University - Department of Finance

Date Written: August 1994

Abstract

In this paper we compare time series and cross section estimates of the well known Vasicek [1977] and Cox, Ingersoll and Ross [1985] term structure models for a dataset of daily bond prices and short term interest rates for the Netherlands. The main conclusion of this paper is the great similarity of the cross sectional estimated term structures of interest between the two models. Using the estimated parameters of both models to value bond options, an almost similar result is obtained. It looks as though bonds are priced as if the spot riksfree rate is random walk. From a time series perspective, we find that the two models also provide similar results. For some maturities the data reject the constant volatility Vasicek model and indicate the presence of the CIR volatility effects.

JEL Classification: F30

Suggested Citation

de Munnik, Jeroen F.J. and Schotman, Peter C., Cross Sectional Versus Time Series Estimation of Term Structure Models: Empirical Results for the Dutch Bond Market (August 1994). Available at SSRN: https://ssrn.com/abstract=5645

Jeroen F.J. de Munnik

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Peter C. Schotman (Contact Author)

Maastricht University - Department of Finance ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3862 (Phone)
+31 43 388 4875 (Fax)

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