In this paper, we analyze the importance of curvature term structure movements on forecasts of interest rate means. An extension of the exponential three-factor Diebold and Li (2006) model is proposed, where a fourth factor captures a second type of curvature. The new factor increases model...

In this paper, we study how different choices of loadings affect forecasting in the exponential term structure model proposed by Diebold and Li (2006). The loadings are defined through a specific parameter lambda which controls both the decaying speed of the slope as well as the maximum of the...

Fixed income options contain substantial information on the price of interest rate volatility risk. In this paper, we ask if those options will provide information related to other moments of the objective distribution of interest rates. Based on a dynamic term structure model, we find that...

Recent empirical analysis of interest rate markets documents that bond demand and supply directly affect yield curve movements and bond risk premium. Motivated by those findings we propose a parametric interest rate model that allows for segmentation and local shocks in the term structure. We...

In this paper we implement dynamic term structure models that adopt bonds and Asian options in the estimation process. The goal is to analyse the pricing and hedging implications of term structure movements when options are (or are not) included in the estimation process. We investigate how...

Fixed income options contain substantial information on the price of interest rate volatility risk. In this paper, we ask if those options will also provide information related to other moments of the objective distribution of interest rates. Based on dynamic term structure models within the...

Recently, a myriad of factor models including macroeconomic variables have been proposed to analyze the yield curve. We present an alternative factor model where term structure movements are captured by Legendre polynomials mimicking the statistical factor movements identified by Litterman and...