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Explicit Solutions of Quadratic FBSDEs Arising from Quadratic Term Structure Models

Hyndman, Cody Blaine - 2014

We provide explicit solutions of certain forward-backward stochastic differential equations (FBSDEs) with quadratic growth. These particular FBSDEs are associated with quadratic term structure models of interest rates and characterize the zero-coupon bond price. The results of this paper are...

Persistent link: https://www.econbiz.de/10013046024

A Tractable Framework for Zero-Lower-Bound Gaussian Term Structure Models

Krippner, Leo - 2014

apply my framework to United States yield curve data, with robust estimation via the iterated extended Kalman filter, and …

Persistent link: https://www.econbiz.de/10013063249

What Fed funds futures tell us about monetary policy uncertainty

Fontaine, Jean-Sébastien - 2016

The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a "path" factor signaling information about future policy actions, which is filtered from federal funds futures data. The uncertainty is highest when it...

Persistent link: https://www.econbiz.de/10011576374

Comparing models for forecasting the yield curve

Matsumura, Marco Shinobu; Moreira, Ajax - 2015

The evolution of the yields of different maturities is related and can be described by a reduced number of commom latent factors. Multifactor interest rate models of the finance literature, common factor models of the time series literature and others use this property. Each model has advantages...

Persistent link: https://www.econbiz.de/10012053243

Can macroeconomic variables account for the term structure of sovereign spreads? : studying the Brazilian case

Matsumura, Marco Shinobu; Moreira, Ajax - 2015

simplifying their model, propose a new estimation method, add credit risk, and show results for Brazilian domestic and external …

Persistent link: https://www.econbiz.de/10012025179

Macro risks and the term structure of interest rates

Bekaert, Geert; Engstrom, Eric; Ermolov, Andrey - 2017

We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great...

Persistent link: https://www.econbiz.de/10011709342

Caplet Pricing in Affine Models for Risk-Free Rates

Fontana, Claudio - 2022

Risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. In this context, under minimal assumptions, we derive explicit valuation formulas for forward-looking and backward-looking caplets/floorlets,...

Persistent link: https://www.econbiz.de/10013297131

Term Structure Modelling With Overnight Rates Beyond Stochastic Continuity

Fontana, Claudio; Grbac, Zorana; Schmidt, Thorsten - 2022

In the current reform of interest rate benchmarks, a central role is played by risk-free rates (RFRs), such as SOFR (secured overnight financing rate) in the US. A key feature of RFRs is the presence of jumps and spikes at periodic time intervals as a result of regulatory and liquidity...

Persistent link: https://www.econbiz.de/10013305614

Unspanned Stochastic Volatility from an Empirical and Practical Perspective

Backwell, Alex - 2019

stochastic volatility (USV): volatility risk that cannot be hedged with bonds or swaps. Simulated data is used to assess the …I study the relationship between interest rates and interest-rate volatility, particularly the idea of unspanned … backing, I consider data from several modern interest-rate markets, and find volatility to be largely, and often fully …

Persistent link: https://www.econbiz.de/10012903769

CVA and Vulnerable Options in Stochastic Volatility Models

Alos, Elisa - 2019

determines an increase of the claim's price. In particular, we are interested in evaluating the CVA in stochastic volatility …

Persistent link: https://www.econbiz.de/10012865678