2011/11/22 by Martin Rypdal, M. Rypdal, Rypdal, M. +3
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Risk and Volatility Modeling #Risk Management (q-fin.RM) #Statistical Finance (q-fin.ST) #Stochastic processes and financial applications #q-fin.RM #q-fin.ST
paper · pdf · doi:10.48550/arxiv.1111.5265
16 pages, 3 figures, 7 tables
arxiv created 2011/11/22 · openalex publication_date 2011/11/22 · arxiv updated 2011/11/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We propose a multifractal model for short-term interest rates. The model is a version of the Markov-Switching Multifractal (MSM), which incorporates the well-known level effect observed in interest rates. Unlike previously suggested models, the level-MSM model captures the power-law scaling of the structure functions and the slowly decaying dependency in the absolute value of returns. We apply the model to the Norwegian Interbank Offered Rate with three months maturity (NIBORM3) and the U.S. Treasury Bill with three months maturity (TBM3). The performance of the model is compared to level-GARCH models, level-EGARCH models and jump-diffusions. For the TBM3 data the multifractal out-performs all the alternatives considered.