On the robustness of short-term interest rate models

This paper investigates the robustness of a range of short–term interest rate models. We examine the robustness of these models over different data sets, time periods, sampling frequencies, and estimation techniques. We examine a range of popular one–factor models that allow the conditional mean (drift) and conditional variance (diffusion) to be functions of the current short rate. We find that parameter estimates are highly sensitive to all of these factors in the eight countries that we examine. Since parameter estimates are not robust, these models should be used with caution in practice.

On the estimation and comparison of short-rate models using the generalised method of moments

Subsequent to the influential paper of [Chan, K.C., Karolyi, G.A., Longstaff, F.A., Sanders, A.B., 1992. An empirical comparison of alternative models of the short-term interest rate. Journal of Finance 47, 1209-1227], the generalised method of moments (GMM) has been a popular technique for estimation and inference relating to continuous-time models of the short-term interest rate. GMM has been widely employed to estimate model parameters and to assess the goodness-of-fit of competing short-rate specifications. The current paper conducts a series of simulation experiments to document the bias and precision of GMM estimates of short-rate parameters, as well as the size and power of [Hansen, L.P., 1982. Large sample properties of generalised method of moments estimators. Econometrica 50, 1029-1054], J-test of over-identifying restrictions. While the J-test appears to have appropriate size and good power in sample sizes commonly encountered in the short-rate literature, GMM estimates of the speed of mean reversion are shown to be severely biased. Consequently, it is dangerous to draw strong conclusions about the strength of mean reversion using GMM. In contrast, the parameter capturing the levels effect, which is important in differentiating between competing short-rate specifications, is estimated with little bias. (c) 2006 Elsevier B.V. All rights reserved.

Are there non-linearities in short-term interest rates?

The present paper investigates the characteristics of short-term interest rates in several countries. We examine the importance of nonlinearities in the mean reversion and volatility of short-term interest rates. We examine various models that allow the conditional mean (drift) and conditional variance (diffusion) to be functions of the current short rate.We find that different markets require different models. In particular, we find evidence of nonlinear mean reversion in some of the countries that we examine, linear mean reversion in others and no mean reversion in some countries. For all countries we examine, there is strong evidence of the need for the volatility of interest rate changes to be highly sensitive to the level of the short-term interest rate. Out-of-sample forecasting performance of one-factor short rate models is poor, stemming from the inability of the models to accommodate jumps and discontinuities in the time series data.

Metabolite mean transit times in the liver as predicted by various models of hepatic elimination

Predicted area under curve (AUC), mean transit time (MTT) and normalized variance (CV2) data have been compared for parent compound and generated metabolite following an impulse input into the liver, Models studied were the well-stirred (tank) model, tube model, a distributed tube model, dispersion model (Danckwerts and mixed boundary conditions) and tanks-in-series model. It is well known that discrimination between models for a parent solute is greatest when the parent solute is highly extracted by the liver. With the metabolite, greatest model differences for MTT and CV2 occur when parent solute is poorly extracted. In all cases the predictions of the distributed tube, dispersion, and tasks-in-series models are between the predictions of the rank and tube models. The dispersion model with mixed boundary conditions yields identical predictions to those for the distributed tube model (assuming an inverse gaussian distribution of tube transit times). The dispersion model with Danckwerts boundary conditions and the tanks-in series models give similar predictions to the dispersion (mixed boundary conditions) and the distributed tube. The normalized variance for parent compound is dependent upon hepatocyte permeability only within a distinct range of permeability values. This range is similar for each model but the order of magnitude predicted for normalized variance is model dependent. Only for a one-compartment system is the MIT for generated metabolite equal to the sum of MTTs for the parent compound and preformed metabolite administered as parent.

Transport properties of strongly correlated metals: A dynamical mean-field approach

The temperature dependence of the transport properties of the metallic phase of a frustrated Hubbard model on the hypercubic lattice at half-filling is calculated. Dynamical mean-held theory, which maps the Hubbard model onto a single impurity,Anderson model that is solved self-consistently, and becomes exact in the limit of large dimensionality, is used. As the temperature increases there is a smooth crossover from coherent Fermi liquid excitations at low temperatures to incoherent excitations at high temperatures. This crossover leads to a nonmonotonic temperature dependence for the resistance, thermopower, and Hall coefficient, unlike in conventional metals. The resistance smoothly increases from a quadratic temperature dependence at low temperatures to large values which can exceed the Mott-Ioffe-Regel value ha/e(2) (where a is a lattice constant) associated with mean free paths less than a lattice constant. Further signatures of the thermal destruction of quasiparticle excitations are a peak in the thermopower and the absence of a Drude peak in the optical conductivity. The results presented here are relevant to a wide range of strongly correlated metals, including transition metal oxides, strontium ruthenates, and organic metals.

Dynamics of trapped Bose-Einstein condensates: Beyond the mean-field

Since dilute Bose gas condensates were first experimentally produced, the Gross-Pitaevskii equation has been successfully used as a descriptive tool. As a mean-field equation, it cannot by definition predict anything about the many-body quantum statistics of condensate. We show here that there are a class of dynamical systems where it cannot even make successful predictions about the mean-field behavior, starting with the process of evaporative cooling by which condensates are formed. Among others are parametric processes, such as photoassociation and dissociation of atomic and molecular condensates.

An aggregate sales model for consumer durables incorporating a time-varying mean replacement age

Forecasting category or industry sales is a vital component of a company's planning and control activities. Sales for most mature durable product categories are dominated by replacement purchases. Previous sales models which explicitly incorporate a component of sales due to replacement assume there is an age distribution for replacements of existing units which remains constant over time. However, there is evidence that changes in factors such as product reliability/durability, price, repair costs, scrapping values, styling and economic conditions will result in changes in the mean replacement age of units. This paper develops a model for such time-varying replacement behaviour and empirically tests it in the Australian automotive industry. Both longitudinal census data and the empirical analysis of the replacement sales model confirm that there has been a substantial increase in the average aggregate replacement age for motor vehicles over the past 20 years. Further, much of this variation could be explained by real price increases and a linear temporal trend. Consequently, the time-varying model significantly outperformed previous models both in terms of fitting and forecasting the sales data. Copyright (C) 2001 John Wiley & Sons, Ltd.

Inferring genome trees by using a filter to eliminate phylogenetically discordant sequences and a distance matrix based on mean normalized BLASTP scores

Darwin's paradigm holds that the diversity of present-day organisms has arisen via a process of genetic descent with modification, as on a bifurcating tree. Evidence is accumulating that genes are sometimes transferred not along lineages but rather across lineages. To the extent that this is so, Darwin's paradigm can apply only imperfectly to genomes, potentially complicating or perhaps undermining attempts to reconstruct historical relationships among genomes (i.e., a genome tree). Whether most genes in a genome have arisen via treelike (vertical) descent or by lateral transfer across lineages can be tested if enough complete genome sequences are used. We define a phylogenetically discordant sequence (PDS) as an open reading frame (ORF) that exhibits patterns of similarity relationships statistically distinguishable from those of most other ORFs in the same genome. PDSs represent between 6.0 and 16.8% (mean, 10.8%) of the analyzable ORFs in the genomes of 28 bacteria, eight archaea, and one eukaryote (Saccharomyces cerevisiae). In this study we developed and assessed a distance-based approach, based on mean pairwise sequence similarity, for generating genome trees. Exclusion of PDSs improved bootstrap support for basal nodes but altered few topological features, indicating that there is little systematic bias among PDSs. Many but not all features of the genome tree from which PDSs were excluded are consistent with the 16S rRNA tree.