Download or read book Do Bonds Span Volatility Risk in the U S Treasury Market written by Torben Gustav Andersen and published by . This book was released on 2007 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds ("realized yield volatility") through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross-section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature.
Download or read book Do Bonds Span Volatility Risks in the U S Treasury Market written by Torben Gustav Andersen and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds ("realized yield volatility") through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross-section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature.
Download or read book Do Bonds Span Volatility Risk in the U S Treasury Market A Specification Test for Affine Term Structure Models written by Torben G. Andersen and published by . This book was released on 2010 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds (quot;realized yield volatilityquot;) through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross-section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature.
Download or read book Do Bonds Span Volatility Risk in the U S Treasury Market a Specification Test for Fine Term Structure Models written by Torben G. Andersen and published by . This book was released on 2007 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Issues in Finance Business and Economics Research 2011 Edition written by and published by ScholarlyEditions. This book was released on 2012-01-09 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt: Issues in Finance, Business, and Economics Research: 2011 Edition is a ScholarlyEditions™ eBook that delivers timely, authoritative, and comprehensive information about Finance, Business, and Economics Research. The editors have built Issues in Finance, Business, and Economics Research: 2011 Edition on the vast information databases of ScholarlyNews.™ You can expect the information about Finance, Business, and Economics Research in this eBook to be deeper than what you can access anywhere else, as well as consistently reliable, authoritative, informed, and relevant. The content of Issues in Finance, Business, and Economics Research: 2011 Edition has been produced by the world’s leading scientists, engineers, analysts, research institutions, and companies. All of the content is from peer-reviewed sources, and all of it is written, assembled, and edited by the editors at ScholarlyEditions™ and available exclusively from us. You now have a source you can cite with authority, confidence, and credibility. More information is available at http://www.ScholarlyEditions.com/.
Download or read book Yield Curve Modeling and Forecasting written by Francis X. Diebold and published by Princeton University Press. This book was released on 2013-01-15 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed. Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Download or read book Spanned Stochastic Volatility in Bond Markets written by Don H. Kim and published by . This book was released on 2007 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reexamines the issue of unspanned stochastic volatility (USV) in bond markets and the puzzle of poor relative pricing between bonds and bond options. I make a distinction between the "weak USV" and the "strong USV" scenarios, and analyze the evidence for each of them. I argue that the poor bonds/options relative pricing in the extant literature is not necessarily evidence for the strong USV scenario, and show that a maximally flexible 2-factor quadratic-Gaussian model (a non-USV model) estimated without bond options data can capture much of the movement in bond option prices. Dropping the positive-definiteness requirement for nominal interest rates and adopting "regularized" estimations turn out to be important for obtaining sensible results.
Download or read book Pathwise Estimation and Inference for Diffusion Market Models written by Nikolai Dokuchaev and published by CRC Press. This book was released on 2019-03-26 with total page 139 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pathwise estimation and inference for diffusion market models discusses contemporary techniques for inferring, from options and bond prices, the market participants' aggregate view on important financial parameters such as implied volatility, discount rate, future interest rate, and their uncertainty thereof. The focus is on the pathwise inference methods that are applicable to a sole path of the observed prices and do not require the observation of an ensemble of such paths. This book is pitched at the level of senior undergraduate students undertaking research at honors year, and postgraduate candidates undertaking Master’s or PhD degree by research. From a research perspective, this book reaches out to academic researchers from backgrounds as diverse as mathematics and probability, econometrics and statistics, and computational mathematics and optimization whose interest lie in analysis and modelling of financial market data from a multi-disciplinary approach. Additionally, this book is also aimed at financial market practitioners participating in capital market facing businesses who seek to keep abreast with and draw inspiration from novel approaches in market data analysis. The first two chapters of the book contains introductory material on stochastic analysis and the classical diffusion stock market models. The remaining chapters discuss more special stock and bond market models and special methods of pathwise inference for market parameter for different models. The final chapter describes applications of numerical methods of inference of bond market parameters to forecasting of short rate. Nikolai Dokuchaev is an associate professor in Mathematics and Statistics at Curtin University. His research interests include mathematical and statistical finance, stochastic analysis, PDEs, control, and signal processing. Lin Yee Hin is a practitioner in the capital market facing industry. His research interests include econometrics, non-parametric regression, and scientific computing.
Download or read book Riskfree rate dynamics written by Michel van der Wel. and published by Rozenberg Publishers. This book was released on 2008 with total page 155 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Handbook of Financial Time Series written by Torben Gustav Andersen and published by Springer Science & Business Media. This book was released on 2009-04-21 with total page 1045 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of Financial Time Series gives an up-to-date overview of the field and covers all relevant topics both from a statistical and an econometrical point of view. There are many fine contributions, and a preamble by Nobel Prize winner Robert F. Engle.
Download or read book Affine Term Structure Models Volatility and the Segmentation Hypothesis written by Kris Jacobs and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several papers have questioned the ability of multifactor affine models to extract interest rate volatility from the cross-section of bond prices. These studies find that the conditional volatility implied by these models is very poorly or even negatively correlated with model-free volatility. We provide an in-depth investigation of the conditional volatility of monthly Treasury yields implied by three-factor affine models. We investigate different specifications of the price of risk and different specifications of volatility. For long maturities, the correlation between model-implied and EGARCH volatility estimates is approximately 82% for yield differences and 92% for yield levels. For short-maturity yields, the correlation varies between 58% and 71% for yield differences and between 62% and 76% for yield levels. The differences at short maturities are largely accounted for by the number of factors affecting volatility. A model-free measure of the level factor is highly correlated with EGARCH volatility as well as model-implied volatilities, which explains most of our findings. We conclude that multifactor affine models are much better at extracting time-series volatility from the cross-section of yields than argued in the literature. However, existing models have difficulty capturing volatility dynamics at the short end of the maturity spectrum, perhaps indicating some form of segmentation between long-maturity and short-maturity bonds. These results are robust to the choice of sample period, interpolation method and estimation method.
Download or read book Identifying Term Structure Volatility from the Libor Swap Curve written by Samuel Brodsky Thompson and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a new family of specification tests and applies them to affine term structure models of the London Interbank Offered Rate (LIBOR)-swap curve. Contrary to Dai and Singleton (), the tests show that when standard estimation techniques are used, affine models do a poor job of forecasting volatility at the short end of the term structure. Improving the volatility forecast does not require different models; rather, it requires a different estimation technique. The paper distinguishes between two econometric procedures for identifying volatility. The ldquo;cross-sectionalrdquo; approach backs out volatility from a cross section of bond yields, and the ldquo;time-seriesrdquo; approach imputes volatility from time-series variation in yields. For an affine model, the volatility implied by the time-series procedure passes the specification tests, while the cross-sectionally identified volatility does not. This is surprising, since under correct specification, the ldquo;cross-sectionalrdquo; approach is maximum likelihood. One explanation is that affine models are slightly misspecified; another is that bond yields do not span volatility, as in Collin-Dufresne and Goldstein ().
Download or read book Beyond Single Factor Affine Term Structure Models written by Eva Ferreira and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article proposes a new approach to testing for the hypothesis of a single priced risk factor driving the term structure of interest rates. The method does not rely on any parametric specification of the state variable dynamics or the market price of risk. It simply exploits the constraint imposed by the no-arbitrage condition on instantaneous expected bond returns. In order to achieve our goal, we develop a Kolmogorov-Smirnov test and apply it to data on Treasury bills and bonds for both the United States and Spain. We find that the single risk factor hypothesis cannot be rejected for either dataset.
Download or read book On the Estimation of Term Structure Models and An Application to the United States written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-11-01 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses the estimation of models of the term structure of interest rates. After reviewing the term structure models, specifically the Nelson-Siegel Model and Affine Term- Structure Model, this paper estimates the terms structure of Treasury bond yields for the United States with pre-crisis data. This paper uses a software developed by Fund staff for this purpose. This software makes it possible to estimate the term structure using at least nine models, while opening up the possibility of generating simulated paths of the term structure.
Download or read book Do Bonds Span the Fixed Income Markets Theory and Evidence for Unspanned Stochastic Volatility written by Pierre Collin-Dufresne and published by . This book was released on 2011 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most models of the term structure are restrictive in that they assume the bond market forms a complete market. That is, they assume all sources of risk affecting fixed income derivatives can be completely hedged by a portfolio consisting solely of bonds. Below, we present empirical evidence which suggests this prediction fails in practice. In particular, we find that changes in swap rates have very limited explanatory power for returns on at-the-money straddles - portfolios mainly exposed to volatility risk. We term this empirical feature 'unspanned' stochastic volatility (USV). We demonstrate that bivariate Markov models (e.g., Fong and Vasicek (1991), Longstaff and Schwartz (1992)) cannot exhibit USV. Then, we determine necessary (and apparently sufficient) parameter restrictions for trivariate Markov affine systems to exhibit USV. Finally, USV is shown to occur naturally within the Heath-Jarrow-Morton framework.
Download or read book Handbook of Quantitative Finance and Risk Management written by Cheng-Few Lee and published by Springer Science & Business Media. This book was released on 2010-06-14 with total page 1700 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. Increasingly, the tools of financial analysis are being applied to assess, monitor, and mitigate risk, especially in the context of globalization, market volatility, and economic crisis. This two-volume handbook, comprised of over 100 chapters, is the most comprehensive resource in the field to date, integrating the most current theory, methodology, policy, and practical applications. Showcasing contributions from an international array of experts, the Handbook of Quantitative Finance and Risk Management is unparalleled in the breadth and depth of its coverage. Volume 1 presents an overview of quantitative finance and risk management research, covering the essential theories, policies, and empirical methodologies used in the field. Chapters provide in-depth discussion of portfolio theory and investment analysis. Volume 2 covers options and option pricing theory and risk management. Volume 3 presents a wide variety of models and analytical tools. Throughout, the handbook offers illustrative case examples, worked equations, and extensive references; additional features include chapter abstracts, keywords, and author and subject indices. From "arbitrage" to "yield spreads," the Handbook of Quantitative Finance and Risk Management will serve as an essential resource for academics, educators, students, policymakers, and practitioners.
Download or read book Sharpe and Treynor Ratios on Treasury Bonds written by Eugene A. Pilotte and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We challenge asset pricing theory with numerous stylized facts regarding risk and return on U.S. Treasury securities. Most striking is our finding that reward-to-risk ratios vary inversely with maturity and are incredibly high for short-term bills. Apparently investors would do much better engaging in highly leveraged investments in bills instead of purchasing long maturity bonds or common stocks. Simulations of estimated three-factor affine term structure models do not replicate the high ratios of reward to risk for bills. Other results include business cycle patterns in risk premiums, volatility, and the reward to volatility that vary with maturity.
