Estimation and Comparison of Short-Term Interest Rate Equilibrium Models Using Islamic Treasury Bills

Subject Areas : Financial engineering

moslem peymany ¹ , zohreh hooshangi ²

1 - Management and accounting department, allameh tabatabaei university
2 - management and accounting department, allameh tabatabaei university

Received: 2017-05-17 Accepted : 2017-10-07 Published : 2017-12-22

Keywords: Short-term profit rates, generalized momentary method, equilibrium models, interest rate fluctuations,

Abstract :

In the following paper, short-term interest rate is modeled using some of the most prevalent single factor equilibrium models in Iran. In this research, model’s performance is compared to each other using some indicators relating to model fitness, interest volatility and interest level changes. For this purpose, Islamic treasury bill yield data were obtained from the period 1394 to 1395 and the models were estimated using generalized method of moments. The findings of this research illustrate that Brennan-Schwartz and CKLS models perform better in interest rate fitness compared to other restricted models. Also, Brennan-Schwartz model show more predictive power than other models. In addition, short-term interest rate of Islamic Treasury Bill exhibit some mean reverting feature and the level of long term mean is estimated as well. Although all the models perform poorly in interest rate volatility fitness, there are some evidences showing that it is sensitive to the level of interest rate.