Abstract
The modelling of short-term interest rates in emerging markets is an important research area, especially in view of the growth of new financial markets and of the financial securities traded in these countries. Over the last decade, a number of researchers have looked at different models of short-term interest rates. An important paper in this area is the study by Chan, Karolyi, Longstaff and Sanders (1992, CKLS hereafter), who considered various one-factor models nested in their general interest rate model. The CKLS general model captured various aspects of interest rate behaviour, including drift and mean reversion of interest rates. It also allowed for a general relationship between the level of interest rates and the volatility of rates. By imposing restrictions on these parameters, various well-known models in the literature that are used extensively by financial market operators can be utilized.
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Nowman, K.B., Shubber, K.J.A. (2005). Continuous Time Dynamic Modelling of Interest Rates in Emerging Markets. In: Motamen-Samadian, S. (eds) Dynamic Models and Their Applications in Emerging Markets. Centre for the Study of Emerging Markets Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230599598_2
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DOI: https://doi.org/10.1057/9780230599598_2
Publisher Name: Palgrave Macmillan, London
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