AStudy On The Jump Behavior Of Interest Rates Based On The DEJ-GARCH-Vasicek Model

As one of the most important variables in the monetary market even in thefinancial market, interest rates especially the short-term interest rates play a pivotal rolein the pricing of financial products and their derivatives, interest rate risk managementand the central bank’s monetary policy transmission. In recent years, due to the financialcrisis and the European debt crisis etc, international financial markets experiences along period of turmoil, and the volatility of the prices and yields of financial assets isvery abnormal. In particular, the jump behavior of interest rates especially theshort-term interest rates accepts more and more attention, and is becoming a hot spot ofcurrent interest rates research. In order to better describe the jump behavior of interestrates, this paper constructs a DEJ-GARCH-Vasicek model which can describe thevolatility clustering, mean reversion and jump behavior of interest rates by assuming thedistribution of jump size to be double exponential, which is based on the statisticanalysis of the jump behavior.Firstly, this paper points out the shortage of the existing researchs in depictinginterest rates’ jump behavior by reviewing the existing literature. Secondly, analysingthe related theories, and demonstrating the advantage of DEJ-GARCH-Vasicek modelin describing the jump behavior of interest rates from the qualitative point of view.Thirdly, constructing DEJ-GARCH-Vasicek model, and using this model to research thejump behavior of representative interest rates through the method of maximumlikelihood, and comparing its estimating performance with models such as Vasicek,GARCH-Vasicek, NJ-Vasicek, DEJ-Vasicek and NJ-GARCH-Vasicek, which showsthe advantage of DEJ-GARCH-Vasicek model in depicting the dynamic behavior ofinterest rates from the qualitative point of view. Finally, for the more in-depth analysisof interest rates’ jump behavior, this paper studies the influencing factors of interestrates’ jump behavior from the aspects of macroscopic and microscopic, which is underthe framework of DEJ-GARCH-Vasicek model.The empirical research shows that, compared with the existing models,DEJ-GARCH-Vasicek model can better capture the characteristics of interest rates’jump behavior and can better depict and explain the dynamic behavior of interest rates.In addition, initial public offering and monetary policies such as adjustments of thelegal deposit reserve rate, the lending and deposit rate are the main cause of the short-term interest rates’jump behavior.