Dear all!
I have some difficulties with estimating parameters. Given a function with
where is a given constant,
and
Let be some observed datapoints for (e.g.) .
I then formulate a target function by
Does anybody have a clue how to estimate the parameters and to solve the problem above?
Thanks for any hint!
Frodo
CB, thanks for your hint. I've found a pretty nice simplex-solver in R to solve the minimizing problem mentioned above.
However, there is another thing I'm thinking about... In the end I want to generate stochastic zero-coupon bond prices for various maturities and various points in time .
Using the risk-neutral process for the spot-rate suggested by Vasicek (1977) I can simulate the (instantaneous) spot rate for all and derive all ZCB-prices I need.
Since there is an explicit formula
to solve the differential equation , one only needs to determine the parameters and to solve the whole thing.
Given some today's ZCB-Prices , does it make sense to estimate and according to
?
Actually I now know how to solve the minimizing problem, but I'm not sure if this approach makes sense in general.
Thanks for any hints!