An Econometric Model of the Term Structure of Interest Rates Under Regime-Switching Risk
Title | An Econometric Model of the Term Structure of Interest Rates Under Regime-Switching Risk PDF eBook |
Author | Shu Wu |
Publisher | |
Pages | 45 |
Release | 2008 |
Genre | |
ISBN |
This paper develops and estimates a continuous-time model of the term structure of interests under regime shifts. The model features an analytically simple representation of Markov regime shifts that helps elucidate the effect of regime shifts on the yield curve and give a clear interpretation of regime-switching risk premiums. The model falls within the broad class of essentially affine models with a closed form solution of the yield curve, yet it is flexible enough to accommodate priced regime-switching risk, time-varying transition probabilities, regime-dependent mean reversion coefficients as well as stochastic volatilities within each regime. A two-factor version of the model is implemented using Efficient Method of Moments. Empirical results show that the model can account for many salient features of the yield curve in the U.S.
Modeling the Term Structure of Interest Rates
Title | Modeling the Term Structure of Interest Rates PDF eBook |
Author | Rajna Gibson |
Publisher | Now Publishers Inc |
Pages | 171 |
Release | 2010 |
Genre | Business & Economics |
ISBN | 1601983727 |
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.
Regime Shifts, Risk and the Term Structure
Title | Regime Shifts, Risk and the Term Structure PDF eBook |
Author | Martin D.D. Evans |
Publisher | |
Pages | 36 |
Release | 2010 |
Genre | |
ISBN |
This paper develops and estimates a general equilibrium model for the term structures of nominal and real interest rates that incorporates regime-switching into the dynamics of the state variables. The model generates time-varying risk premia via changes in the covariance structure of the state variables and Peso problems through regime-switching. When the model is estimated using real and nominal yields from the U.K., I find that Peso problems emanating from instability in inflation have a significant impact on the nominal term structure. Peso problems affect (i) the sample predictability of excess returns, (ii) nominal term premia, and (iii) the inflation risk premia linking real and nominal yields with expected inflation.
Term Structure of Interest Rates with Regime Shifts
Title | Term Structure of Interest Rates with Regime Shifts PDF eBook |
Author | Ravi Bansal |
Publisher | |
Pages | 70 |
Release | 2001 |
Genre | Interest rate risk |
ISBN |
The Term Structure of Interest Rates
Title | The Term Structure of Interest Rates PDF eBook |
Author | John Driffill |
Publisher | |
Pages | 44 |
Release | 1990 |
Genre | Commerce |
ISBN |
This paper examines data on interest rates in the United Kingdom information on changes in policy regime and their credibility in order to discover the period from 1959-87 using quarterly data. A stochastic regime switching model used by Hamilton, based on an AR(4) model for short rates, and the corresponding model for long rates, does not adequately represent the UK data. Yields on long-term UK government debt behave consistently with the expectations model of the term structure, on a number of basic tests. Their relationship with yields on treasury bills, however, is not consistent with the theory unless an autoregressive risk premium is introduced into the holding period yield on long bonds. The only evidence of a change in the time-series behaviour of long bond yields in these data occurs at the end of 1974. There is no evidence of a policy change in 1979 or 1980. The hypothesis that these interest rates contain unit roots cannot be rejected. Therefore, tests of the expectations model devised by Campbell and Shiller to take account of unit roots in the data were undertaken, but they revealed no evidence of departures from the expectations model.
Testing the Term Structure of Interest Rates from a Stationary Switching Regime Var
Title | Testing the Term Structure of Interest Rates from a Stationary Switching Regime Var PDF eBook |
Author | Martin Sola |
Publisher | |
Pages | 25 |
Release | 1992 |
Genre | |
ISBN |
Numerical Simulation of the Term Structure of Interest Rates Using a Random Field
Title | Numerical Simulation of the Term Structure of Interest Rates Using a Random Field PDF eBook |
Author | Stuart McDonald |
Publisher | |
Pages | 32 |
Release | 2002 |
Genre | Interest rates |
ISBN |