Filtering and Identification of Parabolic Type Factor Model with Stochastic Volatility

Abstract

We consider the dynamics of forward rate process which is modeled by the parabolic type infinite-dimensional factor model with stochastic volatility. The parameters included in this parabolic model are estimated 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.