Download or read book Term Premia and Interest Rate Forecasts in Affine Models written by Gregory R. Duffee and published by . This book was released on 2000 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Term Premia and Interest Rate Forecasts in Affine Models written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Federal Reserve Bank of San Francisco presents the full text of an article entitled "Term Premia and Interest Rate Forecasts in Affine Models," by Gregory R. Duffee. The article discusses the standard class of affine models, which produce poor forecasts of future changes in Treasury yields.
Download or read book A Macroeconomic Approach to the Term Premium written by Emanuel Kopp and published by International Monetary Fund. This book was released on 2018-06-15 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, term premia have been very low and sometimes even negative. Now, with the United States economy growing above potential, inflationary pressures are on the rise. Term premia are very sensitive to the expected future path of growth, inflation, and monetary policy, and an inflation surprise could require monetary policy to tighten faster than anticipated, inducing to a sudden decompression of term and other risk premia, thus tightening financial conditions. This paper proposes a semi-structural dynamic term structure model augmented with macroeconomic factors to include cyclical dynamics with a focus on medium- to long-run forecasts. Our results clearly show that a macroeconomic approach is warranted: While term premium estimates are in line with those from other studies, we provide (i) plausible, stable estimates of expected long-term interest rates and (ii) forecasts of short- and long-term interest rates as well as cyclical macroeconomic variables that are stunningly close to those generated from large-scale macroeconomic models.
Download or read book Using Affine Models of the Term Structure to Estimate Risk Premia written by Nikolaos Panigirtzoglou and published by . This book was released on 2005 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses affine models of the term structure to provide historical estimates of risk premia. The foreign exchange and inflation risk premia can be modelled in the same way since the price level can be thought of as an exchange rate that transforms real prices to nominal prices. Affine models with three latent factors of the Cox, Ingersoll and Ross (1985) type are used, with a common factor between the two pricing kernels (state price vectors) to account for interdependence. In the case of foreign exchange risk premium two factors are used to model the domestic pricing kernel and two factors to model the foreign pricing kernel with a common factor between them. This specification can account for the forward premium anomaly, the tendency for high interest rate currencies to appreciate, which contradicts uncovered interest rate parity. In the case of inflation risk premium two factors are used to model the real pricing kernel and two factors to model the nominal pricing kernel with a common factor between them. The model distinguishes between expected and realised variables and therefore allows the estimation of expectational errors. The model also allows for time-varying market prices of risk and time-varying correlations between the two pricing kernels or between each of the pricing kernels and the foreign exchange rate or the price level. Another contribution, which has been ignored in the previous literature, is that the model is estimated using both bond yields and realised price level or foreign exchange rate changes. Fitting the later is necessary for the model to produce realistic patterns for the price level or foreign exchange rate changes. The results show that the foreign exchange risk premium fell substantially after 96, which is consistent with the large appreciation of sterling. Expectational errors were very large for the whole of the period studied, that is, from 93 to 99. Inflation risk premium was about 100 basis points for most of the period 87 to 97, but fell substantially since Bank independence in March 97, which may be the result of a higher credibility to the new UK monetary policy institutional framework. Inflation expectational errors also became smaller after the adoption of inflation targeting in UK in January 93.
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 Extraction of Financial Market Expectations about Inflation and Interest Rates from a Liquid Market written by Ricardo Gimeno Nogués and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we propose an affine model that uses as observed factors the Nelson and Siegel (NS) components summarising the term structure of interest rates. By doing so, we are able to reformulate the Diebold and Li (2006) approach to forecast the yield curve in a way that allows us to incorporate a non-arbitrage opportunities condition and risk aversion into the model. These conditions seem to improve the forecasting ability of the term structure components and provide us with an estimation of the risk premia. Our approach is somewhat equivalent to the recent contribution of Christiensen, Diebold and Rudebusch (2008). However, not only does it seem to be more intuitive and far easier to estimate, it also improves that model in terms of fitting and forecasting properties. Moreover, with this framework it is possible to incorporate directly the inflation rate as an additional factor without reducing the forecasting ability of the model. The augmented model produces an estimation of market expectations about inflation free of liquidity, counterparty and term premia. We provide a comparison of the properties of this indicator with others usually employed to proxy the inflation expectations, such as the break-even rate, inflation swaps and professional surveys. [Resumen de autor]
Download or read book Handbook of Economic Forecasting written by Graham Elliott and published by Elsevier. This book was released on 2013-08-23 with total page 667 pages. Available in PDF, EPUB and Kindle. Book excerpt: The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. Focuses on innovation in economic forecasting via industry applications Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications Makes details about economic forecasting accessible to scholars in fields outside economics
Download or read book Yield Forecasts and Stochastic Volatility in Affine Models with Macro Factors written by Hwagyun Kim and published by . This book was released on 2011 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Affine term structure models (ATSMs) are known to have a trade-off in predicting future Treasury yields and fitting the time-varying volatility of interest rates. This paper empirically studies the role of macroeconomic variables in simultaneously achieving these two goals under affine models. To this end, we incorporate a liquidity demand theory via a measure of the velocity of money into affine models. We find that this considerably reduces the statistical tension between matching the first and second moments of interest rates. In terms of forecasting yields, the models with the velocity of money outperform among the ATSMs examined, including those with inflation and real activity. Our result is robust across maturities, forecasting horizons, risk price specifications, and the number of latent factors.
Download or read book A Macroeconomic Approach to the Term Premium written by Emanuel Kopp and published by International Monetary Fund. This book was released on 2018-06-15 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, term premia have been very low and sometimes even negative. Now, with the United States economy growing above potential, inflationary pressures are on the rise. Term premia are very sensitive to the expected future path of growth, inflation, and monetary policy, and an inflation surprise could require monetary policy to tighten faster than anticipated, inducing to a sudden decompression of term and other risk premia, thus tightening financial conditions. This paper proposes a semi-structural dynamic term structure model augmented with macroeconomic factors to include cyclical dynamics with a focus on medium- to long-run forecasts. Our results clearly show that a macroeconomic approach is warranted: While term premium estimates are in line with those from other studies, we provide (i) plausible, stable estimates of expected long-term interest rates and (ii) forecasts of short- and long-term interest rates as well as cyclical macroeconomic variables that are stunningly close to those generated from large-scale macroeconomic models.
Download or read book Tips from TIPS written by Stefania D'Amico and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the informational content of TIPS yields from the viewpoint of a general 3-factor no-arbitrage term structure model of inflation and interest rates. Our empirical results indicate that TIPS yields contained a "liquidity premium" that was until recently quite large (1%). Key features of this premium are difficult to account for in a rational pricing framework, suggesting that TIPS may not have been priced efficiently in its early years. Besides the liquidity premium, a time-varying inflation risk premium complicates the interpretation of the TIPS breakeven inflation rate (the difference between the nominal and TIPS yields). Nonetheless, high-frequency variation in the TIPS breakeven rates is similar to the variation in inflation expectations implied by the model, lending support to the view that TIPS breakeven inflation rates are a useful proxy for inflation expectations.
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 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 Current Trends in Bayesian Methodology with Applications written by Satyanshu K. Upadhyay and published by CRC Press. This book was released on 2015-05-21 with total page 674 pages. Available in PDF, EPUB and Kindle. Book excerpt: Collecting Bayesian material scattered throughout the literature, Current Trends in Bayesian Methodology with Applications examines the latest methodological and applied aspects of Bayesian statistics. The book covers biostatistics, econometrics, reliability and risk analysis, spatial statistics, image analysis, shape analysis, Bayesian computation, clustering, uncertainty assessment, high-energy astrophysics, neural networking, fuzzy information, objective Bayesian methodologies, empirical Bayes methods, small area estimation, and many more topics. Each chapter is self-contained and focuses on a Bayesian methodology. It gives an overview of the area, presents theoretical insights, and emphasizes applications through motivating examples. This book reflects the diversity of Bayesian analysis, from novel Bayesian methodology, such as nonignorable response and factor analysis, to state-of-the-art applications in economics, astrophysics, biomedicine, oceanography, and other areas. It guides readers in using Bayesian techniques for a range of statistical analyses.
Download or read book Operations Research Proceedings 2005 written by Hans-Dietrich Haasis and published by Springer Science & Business Media. This book was released on 2006-09-12 with total page 818 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume contains a selection of 128 papers presented in lectures during the international scientific symposium "Operations Research 2005" (OR 2005) held at the University of Bremen, September 7-9, 2005. This international conference took place under the auspices of the German Operations Research Society (GOR). The symposium had about 600 participants from countries all over the world. It attracted academics and practitioners working in various fields of Operations Research and provided them with the most recent advances in Operations Research as well as related areas in Economics, Mathematics, and Computer Science including the special interest streams Logistics and New Maritime Businesses. The program consisted of 3 plenary and 15 semi-plenary talks and about 400 contributed presentations selected by the program committee to be presented in 20 sections.
Download or read book Handbook of Computational Finance written by Jin-Chuan Duan and published by Springer Science & Business Media. This book was released on 2011-10-25 with total page 791 pages. Available in PDF, EPUB and Kindle. Book excerpt: Any financial asset that is openly traded has a market price. Except for extreme market conditions, market price may be more or less than a “fair” value. Fair value is likely to be some complicated function of the current intrinsic value of tangible or intangible assets underlying the claim and our assessment of the characteristics of the underlying assets with respect to the expected rate of growth, future dividends, volatility, and other relevant market factors. Some of these factors that affect the price can be measured at the time of a transaction with reasonably high accuracy. Most factors, however, relate to expectations about the future and to subjective issues, such as current management, corporate policies and market environment, that could affect the future financial performance of the underlying assets. Models are thus needed to describe the stochastic factors and environment, and their implementations inevitably require computational finance tools.
Download or read book Asset Pricing written by B.Philipp Kellerhals and published by Springer Science & Business Media. This book was released on 2004-04-06 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: Covers applications to risky assets traded on the markets for funds, fixed-income products and electricity derivatives. Integrates the latest research and includes a new chapter on financial modeling.
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.
