Time series analysis of the interest rate dynamics with the stochastic, econometric and econophysics models

The dynamics of interest rates play an important role in economics and finance, especially in macroeconomic policy making, derivative pricing, hedging and risk management for fixed income securities. There is a massive amount of literature which were devoted to modeling the dynamics of interest rates in developed markets. These studies show some important properties of spot interest rates in developed financial markets, especially in the U.S. markets. While the interest rate dynamics has been well documented in the literature for the developed markets, there has been not enough study on interest rate dynamics in Turkey and other developing countries. The main purpose of this dissertation is to characterize the behaviour of Turkish interest rates and interest rate volatility with utilizing continuous-time econometric and stochastic models. This dissertation consists of four independent chapters on modeling of interest rates and interest rates volatility. The first chapter of the dissertation introduces a Levy driven continuous-time GARCH(1,1) model to analyze the volatility characteristics of Turkish interest rates. We investigated the long-memory, self-similarity and scaling characteristics of the daily rates on Turkish and US benchmark bonds in Chapter 2. Multifractal properties of the international bond yield series have been examined in this study. For this purpose, we resort to MFDMA method. In chapter 4, we present several wavelet based methods to investigate the co-movements of long-term interest rates between Turkey and four developed (Germany, Japan, USA and UK) markets.