Bayesian analysis of interbank lending market volatility using SV model empirical analysis from SHIBOR

Abstract

The study of interest rate volatility is important for both asset pricing and financial risk management. To depict the heteroskedastic characteristic of interbank offered rate, we establish a basic SV model and estimate the parameters using a typical MCMC numerical approach named Gibbs sampling. From the empirical analysis of SHIBOR, it is concluded that the persistence of volatility is significant, however, less than the stock market, indicating the auto correlations of volatility in lending market decay more quickly.