Empirical Estimation of the Parameters of Stochastic Interest Rate Models Using Euler – Maruyama Maximum Likelihood Method

Abstract

In this paper, we have considered an interest rate model that is driven by Stochastic Differential Equation (SDE) (stochastic interest rate). We employed Euler – Maruyama maximum likelihood method to solve for the unknown parameters analytically. Finally, we estimated the unknown parameters of the SDE from a sample of observations of the stochastic process at known uniformly distributed times using data obtained from Central Bank of Nigeria (CBN) statistical bulletin.