Jump Diffusion Modelling for the Brazilian Short-Term Interest Rate

In order to capture the informational effect of the Brazilian short-term interest rate (SELIC rate) by Poisson jumps, we build on the tests conducted by Das (2002) and Johannes (2004), which show the significance of such structures for U.S. Federal Open Market Committee (FOMC) announcements. As in t...

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Bibliographic Details
Published inBrazilian business review Vol. 12; no. 1; pp. 80 - 103
Main Authors Filho, José, Gonçalves, Edson
Format Journal Article
LanguageEnglish
Published Vitória FUCAPE Business School 05.02.2015
EditionEnglish ed.
Subjects
Approximation
Diffusion
Emerging markets
Financial instruments
Floating exchange rates
Foreign exchange rates
Generalized method of moments
Information sources
Interest rates
Macroeconomics
Monetary policy
Poisson distribution
Short term
Stochastic models
Studies
Volatility
Brazil
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Summary:In order to capture the informational effect of the Brazilian short-term interest rate (SELIC rate) by Poisson jumps, we build on the tests conducted by Das (2002) and Johannes (2004), which show the significance of such structures for U.S. Federal Open Market Committee (FOMC) announcements. As in the above researches, we have found evidence that a relevant amount of the short-term volatility in the fixed income market is captured by introducing jumps on the stochastic process of the short-term rate. This structure also allows the verification of the information content of specific events, such as Brazilian monetary policy authority (COPOM) meetings and public bond auctions.
ISSN:1808-2386
1808-2386
DOI:10.15728/bbr.2015.12.1.4