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 JMF  Vol.4 No.3 , May 2014
Identification and Estimation of Gaussian Affine Term Structure Models with Regime Switching
Abstract: We establish that [1]’s parameters are universally unidentified and a subset of their parameterization is over identified. As a solution to the problem with the identifiability, we propose a new representation of double-regime three-factor GDTSMs whose parameters are just-identified when the number of the pricing-with-error yields equals 2. This new parametrization has another advantage over [2] in that we can back out Q parameters and P parameters separately and make the estimation of structural parameters easier. Finally, we show that regime-switching three-factor arbitrage-free dynamic Nelson-Siegel model is a restricted special case of our model.
Cite this paper: Wang, G. (2014) Identification and Estimation of Gaussian Affine Term Structure Models with Regime Switching. Journal of Mathematical Finance, 4, 148-159. doi: 10.4236/jmf.2014.43014.
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