We propose a novel time-changed L évy LIBOR market model for the joint pricing of caps and swaptions. The time changes are split into three components. The first component allows us to match the volatility term structure, the second generates stochastic volatility, and the third one...

Keeping in view that the roles of portfolio risk and the relationship between different risky lending assets in loan valuation have not been studied empirically, this study examines the relationship between undiversiable portfolio risk and portfolio lending with an attempt to fill the gap...

Using different econometric models, Diebold and Li (J Econom 130:337-364, 2006) addressed the practical problem of forecasting the yield curve by predicting the factors level, slope and curvature in the Nelson-Siegel framework. This paper has two main aims: on the one hand, to investigate the...

Discrete-time Affine Term Structure Models can be expressed in AR(1)- ARCH form, but it is not possible to get a non-negative variance equation only by restricting the parameters. In this paper we use a distribution assumption in order to assure the variance to be non-negative. We present a...

Practical techniques for approximating yield given the price and price given the yield are described. Duration and convexity estimations given prices and yields at three observation points are presented. Such approximations are useful when computing prices and yields from their values at nearby...

We consider the dynamic factor model and show how smoothness restrictions can be imposed on factor loadings by using cubic spline functions. We develop statistical procedures based on Wald, Lagrange multiplier and likelihood ratio tests for this purpose. The methodology is illustrated by...

As it can be seen from the literature the affine yield class of the term structure is very important for obtaining the fundamental properties of the zero-coupon bond yield. Therefore any new results about the properties the affine yield class are very desirable. The present paper is devoted to...

The Polynomial Chaos Expansion (PCE) technique recovers a finite second order random variable exploiting suitable linear combinations of orthogonal polynomials which are functions of a given stochastic quantity $\xi$, hence acting as a kind of random basis. The PCE methodology has been developed...

We jointly estimate a New Keynesian Policy Model with a Gaussian affine no-arbitrage specification of the term structure of interest rates, and assess how important inflation, output and monetary policy shocks are as sources of fluctuations in interest rates and the term premium. To mitigate...

We decompose conditional volatilities of US Treasury yields into components due to short-rate expectations and term premia. To this end, we propose a novel no-arbitrage model which we estimate with extensive second-moment data. Short-rate expectations become more volatile than premia before...