In this paper, we present a multi-factor continuous-time autoregressive moving-average (CARMA) model for the short and forward interest rates. This model is able to present an adequate statistical description of the short and forward rate dynamics. We show that this is a tractable term structure...

The paper focuses on the market equilibrium conditions in forward exchange quotes. By careful analysis of the market arbitrage conditions, market supply and demand, we construct the equilibrium ranges for bid and ask forward quotes separately. We present our analysis in a bid-ask cost structure...

The innovative information-based framework for credit risk modeling, proposed recently by Brody, Hughston, and Macrina, is extended to a more general and practically important setup of random interest rates. We first introduce the market model, and we derive an explicit expression for...

In this paper, we show how to construct dynamic forward rate models in terms of exogenously specified eigenfunctions (or factor loadings). We also show how to link forward rate models with different number of driving Brownian motions to each other in a way consistent with the implied...

In this study, we forecast the term structure of EURIBOR swap rates by means of rolling vector autoregressive (VAR) models. In advance, a principal component analysis (PCA) is adopted to reduce the dimensionality of the term structure. To statistically assess the forecasting performance for...

This paper develops a general equilibrium model of the term structure of interest rates in the presence of the systematic risk of regime shifts. The model elucidates the economic nature of the regime-shift risk premium and introduces a new source of time-variation in bond returns. A closed-form...

We propose a multivariate nonparametric technique for generating reliable historical yield curve scenarios and confidence intervals. The approach is based on a Functional Gradient Descent (FGD) estimation of the conditional mean vector and volatility matrix of a multivariate interest rate...

Recent empirical studies have demonstrated that behaviour of interest rate processes can be better explained if standard diffusion processes are augmented with jumps in the interest rate process. In this paper we examine the performance of both linear and non-linear one factor CKLS model in the...

Data in which each observation is a curve occur in many applied problems. This paper explores prediction in time series in which the data is generated by a curve-valued autoregression process. It develops a novel technique, the predictive factor decomposition, for estimation of the...

In this paper we study corporate debt values, capital structure, and the term structure of interest rates in a unified framework. We employ numerical techniques to compute the firm's optimal capital structure and the value of its long-term risky debt and yield spreads when the value of the...