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Term Structure of Interest Rates, Yield Curve Residuals, and the Consistent Pricing of Interest Rates and Interest Rate Derivatives

Heidari, Massoud; Wu, Liuren - EconWPA - 2002

Dynamic term structure models (DTSMs) price interest rate derivatives based on the model implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often...

Persistent link: https://www.econbiz.de/10005134665

Are Interest Rate Derivatives Spanned by the Term Structure of Interest Rates?

Heidari, Massoud; WU, Liuren - EconWPA - 2002

We investigate whether the same finite dimensional dynamic system spans both interest rates (the yield curve) and interest rate options (the implied volatility surface). We find that the options market exhibits factors independent of the underlying yield curve. While three common factors are...

Persistent link: https://www.econbiz.de/10005134877

Estimating the Volatility Structure of an Arbitrage-Free Interest Rate Model Via the Futures Markets

Bhar, Ram; Chiarella, Carl; To, Thuy-Duong - EconWPA - 2004

This paper considers a class of Heath-Jarrow-Morton (1992) term structure models, characterized by time deterministic volatilities for the instantaneous forward rate. The bias that arises from using observed futures yields as a proxy for the unobserved instantaneous forward rate is analyzed. The...

Persistent link: https://www.econbiz.de/10005413218

Phenomenology of the interest curve

BOUCHAUD, Jean-Philippe; CONT, Rama; KAROUI, Nicole EL; … - EconWPA - 1997

This paper contains a statistical description of the whole U.S. forward rate curve (FRC), based on data from the period 1990-1996. We find that the average deviation of the FRC from the spot rate grows as the square- root of the maturity, with a proportionality constant which is comparable to...

Persistent link: https://www.econbiz.de/10005413172

Expectations, Bond Yields and Monetary Policy

Chun, Albert Lee - EconWPA - 2005

monetary policy actions contain important information for explaining movements in bond yields. Although perceptions about in … with a new set of tools for formally assessing the reaction of bond yields to shifts in market expectations due to the …

Persistent link: https://www.econbiz.de/10005076986

Modelling International Bond Markets with Affine Term Structure Models

Mosburger, Georg; Schneider, Paul - EconWPA - 2005

modelling international bond markets. We derive necessary conditions for the correlation and volatility structure of mixture … international bond markets. Further, the empirical results do not support the existence of local factors in the UK-US setting …, suggesting that diversification benefits from holding currency- hedged bond portfolios in these markets are likely to be small …

Persistent link: https://www.econbiz.de/10005134688

Asset Pricing Under The Quadratic Class

Leippold, Markus; Wu, Liuren - EconWPA - 2002

We identify and characterize a class of term structure models where bond yields are quadratic functions of the state …

Persistent link: https://www.econbiz.de/10005134735

Markov Chain Approximations For Term Structure Models

Backus, David; Wu, Liuren; Zin, Stanley - EconWPA - 2002

We derive discrete markov chain approximations for continuous state equilibrium term structure models. The states and transition probabilities of the markov chain are chosen effciently according to a quadrature rule as in Tauchen and Hussey (1991). Quadrature provides a simple yet method which...

Persistent link: https://www.econbiz.de/10005134854

Looking Behind the U. K.Term Structure: Were there Peso Problems in Inflation?

Evans, Martin - EconWPA - 1998

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 ofthe state variables. The model generates time-varying risk premia via changes in the covariance structure of the state...

Persistent link: https://www.econbiz.de/10005413101

Taking Positive Interest Rates Seriously

Pan, Enlin; Wu, Liuren - EconWPA - 2004

We present a dynamic term structure model in which interest rates of all maturities are bounded from below at zero. Positivity and continuity, combined with no arbitrage, result in only one functional form for the term structure with three sources of risk. One dynamic factor controls the level...

Persistent link: https://www.econbiz.de/10005413120

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