Abstract

We consider the dynamics of forward rate process which is modeled by the parabolic type infinite-dimensional factor model with stochastic volatility. Before using this model to the portfolio construction problem, we need to estimate the parameters included in this parabolic model. Usually this identification is performed by using the yield curve as the observation data. In this paper, we propose the filtering and identification method for the parabolic type factor model by using the maximum likelihood technique.

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