Testing interest rate models for China's repo market

The goal of this paper is to test the interest rate models for China's repo market to understand the behavior of China short rate. I obtain the functional nonparametric estimates of drift and diffusion terms. Because the interest rate process may not be stationary and it has very different properties in two subperiods, I consider their local time estimation. Furthermore, I find that the density of the process is bimodal and it follows Vasicek model within each of the two subperiods. So I assume that the interest rate process also relies on a state variable in addition to short rate. I use a two-regime model to fit the data and study its properties, such as the probabilities that the process stays in one regime and transition probabilities from one regime to another