Some Evidence of the Stochastic Behavior of Interbank Bond Redemption Interest Rates

This paper, following CKLS′s thoughts, uses data of bond redemption interest rate to estimate and compare a variety of continuous models of the short-term riskless rate using the Generalized Method of Moments. We find that successful models in capturing the dynamic short-term interest rates are those that allow the volatility of interest rate changes to be sensitive to the level of the riskless rate. In the mean time, the study of various term structure models has implications in hedging interest rate risk.