Transition Densities for Interest Rate and Other Nonlinear Diffusions

This paper applies to interest rate models the theoretical method developed in Aït-Sahalia (1998) to generate accurate closed-form approximations to the transition function of an arbitrary diffusion. While the main focus of this paper is on the maximum-likelihood estimation of interest rate models with otherwise unknown transition functions, applications to the valuation of derivative securities are also briefly discussed. Copyright The American Finance Association 1999.