In this paper we numerically implement some of the recent theoretical results concerning convexity adjustments derived within the affine term structure setup. The computation of the convexity adjustments in that setup is reduced to solving a system of ODES. Here we explore the Vasicek and...

We solve a dynamic equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics. We apply the framework to the term structure of interest rates and show that the model generates an upward sloping term structure of nominal interest rates, a...

This article presents a structural model for interbank money market rates (XIBOR rates) that endogenously generates the basis spreads that characterize post-crisis fixed income markets: XIBOR-OIS spreads, tenor basis spreads, and the forward basis. In contrast to existing multi-curve models,...

We present the stochastic string model of Santa-Clara and Sornette (2001), as reformulated by Bueno-Guerrero et al. (2014), as a unifying theory of the continuous-time modeling of the term structure of interest rates. We provide several new results, such as: a) an orthogonality condition for the...

In this paper, we propose a way to construct a single forward-looking model for interest rates, which represents their evolution under both the Q-measure and P-measure (a joint measure model). As is well known, the market prices of contingent claims are independent of investor risk preferences....

In this paper we analyse the modelling of deterministic funding and tenor basis spreads for the pricing of Libor exotics. In particular tenor basis may be modelled by means of simple compounded or continuous compounded forward rate spreads. We compare resulting payoff adjustments and discuss...

We present a coherent account of the construction of yield curves, both covering the fundamental theory and practical issues that are relevant to practitioners. We review and extend the formulas for the construction of yield curves using the multi-curve methodology that has gained importance...

We derive a general joint affine term structure model of US government bond yields and the convenience yields on physical commodities. We apply this framework separately to oil and gold. Our results show clear links between bond and commodity markets, since bond factors play a significant role...

We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial...

This study empirically examine the impact of market conditions on credit spreads as motivated by recently developed structural credit risk models. Using credit default swap (CDS) spreads, we find that, in the time series, average credit spreads are decreasing in GDP growth rate, but increasing...