Showing 1 - 10 of 143
Most affine models of the term structure with stochastic volatility predict that the variance of the short rate should play a 'dual role' in that it should also equal a linear combination of yields. However, we find that estimation of a standard affine three-factor model results in a variance...
Persistent link: https://www.econbiz.de/10005067229
Building on <link rid="b20">Duffie and Kan (1996)</link>, we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations. Because these variables possess unambiguous economic interpretations, they generate a representation that is...
Persistent link: https://www.econbiz.de/10005691391
Most affine models of the term structure with stochastic volatility (SV) predict that the variance of the short rate is simultaneously a linear combination of yields and the quadratic variation of the spot rate. However, we find empirically that the A1(3) SV model generates a time series for the...
Persistent link: https://www.econbiz.de/10005778347
Persistent link: https://www.econbiz.de/10008312131
Persistent link: https://www.econbiz.de/10008883166
Persistent link: https://www.econbiz.de/10006961787
We propose a canonical representation for affine term structure models where the state vector is comprised of the first few Taylor-series components of the yield curve and their quadratic (co-)variations. With this representation: (i) the state variables have simple physical interpretations such...
Persistent link: https://www.econbiz.de/10012714927
Building on the approach of Duffie and Kan (1996) who use finite maturity yields as the state vector, we propose a new representation of affine models in which the state vector is composed of infinitesimal maturity yields and their quadratic covariations. Because these variables possess...
Persistent link: https://www.econbiz.de/10012756930
Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit event risk typically preclude the most plausible economic justification for such risk to be priced--namely, a “contagious” response of the market portfolio during the credit event....
Persistent link: https://www.econbiz.de/10011027219
Persistent link: https://www.econbiz.de/10006559136