Download or read book Extended Affine Term Structure Models written by Marco Realdon and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the family of quot;extendedquot; affine term structure models (EATSM), whereby the solution for a discount bond prices involves separation of variables and finite difference numerical solutions. As quadratic term structure models, EATSM are unaffected by the admissibility restrictions that affect affine models. The short interest rate is non-negative, hetero-schedastic and driven by latent factors that may be positively as well negatively correlated. If the factors are positively correlated, bond yields are sufficient statistics to infer the latent factors, which makes EATSM more amenable to estimation than quadratic models. A three-factor EASTM fits observed German Government bond yields well. Trade-offs between desirable model requirements are highlighted. A family of EATSM is also presented that does not restrict the short interest rate to be always positive. The instantaneous correlation between latent factors can itself follow a stochastic process.
Download or read book Long Memory Affine Term Structure Models written by Adam Golinski and published by . This book was released on 2017 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a Gaussian discrete time essentially affine term structure model with long memory state variables. This feature reconciles the strong persistence observed in nominal yields and inflation with the theoretical implications of affine models, especially for long maturities. We characterise in closed-form the dynamic and cross-sectional implications of long memory for our model. We explain how long memory can naturally arise within the term structure of interest rates, providing a theoretical underpinning for our model. Despite the infinite-dimensional structure that long memory implies, we show how to cast the model in state space and estimate it by maximum likelihood. An empirical application of our model is presented.
Download or read book Specification Analysis of Affine Term Structure Models written by Qiang Dai and published by . This book was released on 1997 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper characterizes, interprets, and tests the over-identifying restrictions imposed in affine models of the term" structure. Letting r(t) = ë Y(t), where Y is an unobserved vector affine process, our analysis proceeds in three steps. First, we show that affine models can be categorized according to the different over-identifying restrictions they impose on (i) ë, and (ii) the parameters of the diffusion matrices. Second, this formulation is shown to be equivalent to a model in which there is a terraced drift structure with one of the state variables being the stochastic long-run mean of r. This equivalence allows direct comparisons of the substantive restrictions on the dynamics of interest rates imposed in CIR-style models and models in which the state variables are the stochastic long-run mean and volatility of r. Third, we compute simulated method of moments estimates of a three-factor affine term structure model, and test the over-identifying restrictions on the joint distribution of long- and short-term interest rates implied by extant affine models of r. We find allowing for correlated factors is key to simultaneously describing the short and long ends of the yield curve. This finding is interpreted in terms of the properties of the risk factors underlying term structure movements
Download or read book Affine Term Structure Models written by Christian Gouriéroux and published by . This book was released on 2002 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Direct Estimation of the Risk Neutral Factor Dynamics of Affine Term Structure Models written by Dennis Bams and published by . This book was released on 1998 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Interest Rates with Long Memory written by Daniela Osterrieder and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Infinite Dimensional Affine Term Structure Models Under Incomplete Information written by Weijun Yu and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The first part of the dissertation extends some important results in the classical theory of finite dimensional affine processes to infinite dimensional separable Hilbert spaces. In particular, a necessary and sufficient condition for a continuous Markov diffusion process to be affine is given. Based on the extended theory, two affine term structure models are introduced and the existence and uniqueness of the two models are studied. The second part concentrates on a non-linear filtering problem with infinite dimensional observations and the Kushner-Stratonovich equation under the infinite dimensional observation setting is derived. Finally, the obtained results are applied to study the Kalman-Bucy filter with infinite dimensional observations. It is proved that the filter has a Gaussian distribution and the evolution equations of the mean and the covariance of the filter are deduced from the Kushner-Stratonovich equation
Download or read book Continuous time Identification of Exponential affine Term Structure Models written by Arianto Wibowo and published by . This book was released on 2006 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 Term Structure Models written by Damir Filipovic and published by Springer Science & Business Media. This book was released on 2009-07-28 with total page 259 pages. Available in PDF, EPUB and Kindle. Book excerpt: Changing interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This volume gives an introduction to the mathematics of term-structure models in continuous time. It includes practical aspects for fixed-income markets such as day-count conventions, duration of coupon-paying bonds and yield curve construction; arbitrage theory; short-rate models; the Heath-Jarrow-Morton methodology; consistent term-structure parametrizations; affine diffusion processes and option pricing with Fourier transform; LIBOR market models; and credit risk. The focus is on a mathematically straightforward but rigorous development of the theory. Students, researchers and practitioners will find this volume very useful. Each chapter ends with a set of exercises, that provides source for homework and exam questions. Readers are expected to be familiar with elementary Itô calculus, basic probability theory, and real and complex analysis.
Download or read book Modeling the Term Structure of Interest Rates written by Rajna Gibson and published by Now Publishers Inc. This book was released on 2010 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
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 Two Essays on Estimation and Inference of Affine Term Structure Models written by Qian Wang and published by . This book was released on 2015 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt: Affine term structure models (ATSMs) are one set of popular models for yield curve modeling. Given that the models forecast yields based on the speed of mean reversion, under what circumstances can we distinguish one ATSM from another? The objective of my dissertation is to quantify the benefit of knowing the “true” model as well as the cost of being wrong when choosing between ATSMs. In particular, I detail the power of out-of-sample forecasts to statistically distinguish one ATSM from another given that we only know the data are generated from an ATSM and are observed without errors. My study analyzes the power and size of affine term structure models (ATSMs) by evaluating their relative out-of-sample performance. Essay one focuses on the study of the one-factor ATSMs. I find that the model’s predictive ability is closely related to the bias of mean reversion estimates no matter what the true model is. The smaller the bias of the estimate of the mean reversion speed, the better the out-of-sample forecasts. In addition, my finding shows that the models' forecasting accuracy can be improved, in contrast, the power to distinguish between. different ATSMs will be reduced if the data are simulated from a high mean reversion process with a large sample size and with a high sampling frequency. In the second essay, I extend the question of interest to the multi-factor ATSMs. My finding shows that adding more factors in the ATSMs does not improve models' predictive ability. But it increases the models' power to distinguish between each other. The multi-factor ATSMs with larger sample size and longer time span will have more predictive ability and stronger power to differentiate between models.
Download or read book Affine Term Structure Models written by Cheikh Mbaye and published by . This book was released on 2019 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield, prepayment or default probability curves. Time-homogeneous jump-diffusions like Vasicek or Cox-Ingersoll-Ross (possibly coupled with compound Poisson jumps, JCIR), are tractable processes but have limited flexibility; they fail to replicate actual market curves. The deterministic shift extension of the latter (Hull-White or JCIR++) is a simple but yet efficient solution that is widely used by both academics and practitioners. However, the shift approach is often not appropriate when positivity is required, which is a common constraint when dealing with credit spreads or default intensities. In this paper, we tackle this problem by adopting a time change approach. On the top of providing an elegant solution to the calibration problem under positivity constraint, our model features additional interesting properties in terms of implied volatilities. It is compared to the shift extension on various credit risk applications such as credit default swap, credit default swaption and credit valuation adjustment under wrong-way risk. The time change approach is able to generate much larger volatility and covariance effects under the positivity constraint. Our model offers an appealing alternative to the shift in such cases.
Download or read book Infinite Dimensional Affine Term Structure Models Under Incomplete Information written by and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Nonlinear Kalman Filtering in Affine Term Structure Models written by and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Ergodicity Properties of Affine Term Structure Models and Applications written by Chiraz Trabelsi and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
