CROSS-SECTIONAL VERSUS TIME-SERIES ESTIMATION OF TERM STRUCTURE MODELS - EMPIRICAL RESULTS FOR THE DUTCH BOND MARKET

We compare time series and cross-section estimates of the well-known Vasicek and CIR term structure models for a dataset of daily bond prices and short-term interest rates for the Netherlands. The main finding is the great similarity between the two models with respect to the cross-sectional term structure parameter estimates and implied bond option values. From a time series perspective, we find that for some maturities the data reject the constant volatility Vasicek model and indicate the presence of the CIR volatility effects.