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How can I estimate volatility with historical data for Monetary Policy Rate (MPR) to use in a short rate model?

I could use regular techniques like simple standard deviation or max likelihood, but the problem is the data: MPRs usually have 0 variation over months, even years and then big discrete jumps.

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  • $\begingroup$ This will not answer your question, but: Are you bound to use a continuous short rate model? Could a jump model better reflect the observed data? $\endgroup$ Sep 19, 2022 at 10:46
  • $\begingroup$ I think so. Any recommended model? Any book recommendation to learn about those kind of models? $\endgroup$ Sep 20, 2022 at 2:05

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