Download or read book The Term Structure of Interest Rate in an Economy Where Investors Have Heterogeneous Recursive Preferences written by Sergey Isaenko and published by . This book was released on 2010 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous recursive preferences. We consider a pure exchange economy with two classes of investors who have different relative risk aversions and different elasticities of intertemporal substitution. The RRA and the EIS can be varied independently for each investor. We use the model to examine the effects that the heterogeneity in preferences of investors has on their portfolio-consumption choices as well as on the instantaneous interest rate and bond yield. We find that the heterogeneity only in the RRA affects the cross-sectional as well as intertemporal variations of the consumption rate, the portfolio allocations for each investor and the instantaneous interest rate. However, the heterogeneity only in the EIS matters only for the intertemporal variations of these processes.
Download or read book The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors written by Jiang Wang and published by . This book was released on 1995 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to bond prices. We use the model to examine the effect of preference heterogeneity on the behavior of bond yields. Extensions to cases of more than two investors are also considered
Download or read book The term structure of interest rates in a DSGE model with recursive preferences written by Jules H. van Binsbergen and published by . This book was released on 2010 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We solve a dynamic stochastic general equilibrium (DSGE) model in which the representative household has Epstein and Zin recursive preferences. The parameters governing preferences and technology are estimated by means of maximum likelihood using macroeconomic data and asset prices, with a particular focus on the term structure of interest rates. We estimate a large risk aversion, an elasticity of intertemporal substitution higher than one, and substantial adjustment costs. Furthermore, we identify the tensions within the model by estimating it on subsets of these data. We conclude by pointing out potential extensions that might improve the model's fit.
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 Heterogeneous Beliefs and the Term Structure of Interest Rates written by Lue Wu and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider an exchange economy with two groups of investors with identical CRRA utility function but heterogeneous beliefs. The stochastic central tendency of the dividend drift is not observable. Rational investors learn about it from the dividend drift and a signal, while irrational investors base their inference only on the dividend drift observations. The model shows that heterogeneous beliefs increase the bond yields and have strong impact on yield volatilities and correlations. The effect of the level of difference in beliefs is stronger for short term yields, while the effect of consumption share fluctuations between investor groups is stronger for medium and long term yields.
Download or read book Term Structure of Interest Rates written by Burton Gordon Malkiel and published by Princeton University Press. This book was released on 2015-12-08 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt: Can expectations alone explain the yield differentials among bonds of different maturities? To what extend do attitudes toward risk and transactions costs influence the behavior of bond investors? Is it possible for the Federal Reserve to "twist" the interest-rate structure in accordance with its policy objectives? These are among the questions treated. Originally published in 1966. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.
Download or read book Beliefs About Inflation and the Term Structure of Interest Rates written by Philipp K. Illeditsch and published by . This book was released on 2020 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how differences in beliefs about expected inflation affect the nominal term structure when investors have “catching up with the Joneses” preferences. In the model, “catching up with the Joneses” preferences help to match the level and slope of yields as well as the level of yield volatilities. Disagreement about expected inflation helps to match the dynamics of yields and yield volatilities. Expected inflation disagreement induces a spillover effect to the real side of the economy with a strong impact on the real yield curve. When investors share common preferences over consumption relative to the habit with a coefficient of relative risk aversion greater than one, real average yields across all maturities rise as disagreement increases. Real yield volatilities also rise with disagreement. To develop intuition concerning the role of different beliefs between investors, we consider a case where the real and nominal term structures can be computed as weighted-averages of quadratic Gaussian term structure models. We numerically find increased disagreement about expected inflation between the investors increases nominal yields and nominal yield volatilities at all maturities. We find empirical support for these predictions.
Download or read book The term structure of interests rates written by Diana Ruthenberg and published by GRIN Verlag. This book was released on 2006-04-14 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2004 in the subject Business economics - Investment and Finance, grade: 1.8, University of Plymouth (Business School), language: English, abstract: Firstly, this report will depict briefly what a bond is in general and how to evaluate its advantages and inconveniences for potential investors. Then it aims at to explain when and why the yield on long-term bonds often exceeds the yield on short-term bonds. The explanation will mainly be based on the three primary theories: the expectations hypothesis, the liquidity premium / preferred habitat theories and the market segmentation theory.
Download or read book The Term Structure of Interest Rates written by David Meiselman and published by . This book was released on 1962 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Macroeconomics and Finance written by Andres Schneider and published by . This book was released on 2018 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter one---Risk Sharing and the Term Structure of Interest Rates I propose a general equilibrium model with heterogeneous investors to explain the key properties of the U.S. real and nominal term structure of interest rates. I find that differences in investors' willingness to substitute consumption across time are critical to account for nominal and real yields dynamics. When the endogenous amount of credit supplied by risk-tolerant investors is low, the aggregate price of risk and the real interest rate are high. Thus, real bonds are risky. I study nominal bonds under both exogenous and endogenous (Taylor rule) inflation. I find that when the Taylor loading on inflation is greater than one, the nominal term structure is upward sloping regardless of the correlation between nominal and real shocks. I use the model to shed light on two salient interest rate puzzles: (1) the secular decline of long-term real and nominal rates since the 1980s, and (2) the sudden spike in real yields at the height of the Great Recession. Chapter 2---Endogenous and Exogenous Risk Premia In this second chapter, I investigate how levered balance sheets amplify the effects of exogenous aggregate volatility shocks on asset prices. Risk premia are determined by the interaction of exogenous time-varying fundamentals with the endogenously determined levered balance sheets. When macro-volatility shocks hit the economy, asset prices decline, levered agent loses relatively more net worth and aggregate risk aversion rises endogenously. I find that this feedback between balance sheets and macro-volatility produces six times more volatile premiums than an economy with only cash flow shocks, thus improving the model's ability to match the data. However, the effects on investment and growth are mild. Chapter 3---Liquidity Shocks, Business Cycles and Asset Prices The third chapter is joint work with Saki Bigio. In the aftermath of the Great Recession, macro models that feature financing constraints have attracted increasing attention. Among these, Kiyotaki and Moore 2008 is a prominent example. In this paper, we investigate whether the liquidity shocks and financial frictions proposed by Kiyotaki and Moore 2008 can improve the asset pricing predictions of the frictionless RBC model. We study the quantitative business cycle and asset pricing properties in an economy in which agents feature recursive preferences, are subject to a liquidity constraint, and suffer liquidity shocks. We find that the model predicts highly nonlinear time variation and levels of risk premia, which are driven by endogenous fluctuations in equity prices. However, the model fails to account for a basic fact: Periods of scarce liquidity are associated with high asset prices and low expected returns. Chapter 4---A Macrofinance View of U.S. Sovereign CDS Premiums The forth and last chapter of the dissertation is joint work with Mikhail Chernov and Lukas Schmid. Premiums on U.S. sovereign CDS have risen to persistently elevated levels since the financial crisis. We ask whether these premiums reflect the probability of a fiscal default a state in which budget balance can no longer be restored by raising taxes or eroding the real value of debt by raising inflation. We develop an equilibrium macrofinance model in which the fiscal and monetary policy stance jointly endogenously determine nominal debt, taxes, inflation and growth. We show how CDS premiums reflect endogenous risk-adjusted fiscal default probabilities. A calibrated version of the model is quantitatively consistent with the observed CDS premiums.
Download or read book Term Structure of Interest Rates with Short Run and Long Run Risks written by Olesya V. Grishchenko and published by . This book was released on 2015 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bond returns are time-varying and predictable. What economic forces drive this variation? To answer this long-standing question, we propose a consumption-based model with recursive preferences, long-run risks, and inflation non-neutrality. Our model offers two important insights. First, our model matches well the post-1990 nominal upward-sloping U.S. Treasury yield curve. Second, consistent with our model's implication, variance risk premium based on the U.S. interest rate derivatives data emerges as a strong predictor for short-horizon Treasury excess returns, above and beyond the predictive power of other popular factors. In the model equilibrium, the variance risk premium is related to the short-run risks in the economy, while standard forward-rate-based factors are associated with long-run risks in the economy.
Download or read book The Term Structure of Interest Rates in a DSGE Model with Recursive Preferences written by and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Estimation and Tests of the Term Structure of Interest Rates written by H. Joe Wells and published by . This book was released on 1978 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors written by and published by . This book was released on 1995 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on the Term Structure of Interest Rates written by Wei Shi and published by . This book was released on 1995 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Cyclical Behavior of the Term Structure of Interest Rates written by Reuben A. Kessel and published by . This book was released on 1965 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Economics of Continuous Time Finance written by Bernard Dumas and published by MIT Press. This book was released on 2017-11-10 with total page 641 pages. Available in PDF, EPUB and Kindle. Book excerpt: An introduction to economic applications of the theory of continuous-time finance that strikes a balance between mathematical rigor and economic interpretation of financial market regularities. This book introduces the economic applications of the theory of continuous-time finance, with the goal of enabling the construction of realistic models, particularly those involving incomplete markets. Indeed, most recent applications of continuous-time finance aim to capture the imperfections and dysfunctions of financial markets—characteristics that became especially apparent during the market turmoil that started in 2008. The book begins by using discrete time to illustrate the basic mechanisms and introduce such notions as completeness, redundant pricing, and no arbitrage. It develops the continuous-time analog of those mechanisms and introduces the powerful tools of stochastic calculus. Going beyond other textbooks, the book then focuses on the study of markets in which some form of incompleteness, volatility, heterogeneity, friction, or behavioral subtlety arises. After presenting solutions methods for control problems and related partial differential equations, the text examines portfolio optimization and equilibrium in incomplete markets, interest rate and fixed-income modeling, and stochastic volatility. Finally, it presents models where investors form different beliefs or suffer frictions, form habits, or have recursive utilities, studying the effects not only on optimal portfolio choices but also on equilibrium, or the price of primitive securities. The book strikes a balance between mathematical rigor and the need for economic interpretation of financial market regularities, although with an emphasis on the latter.
