Inspired by the preferred-habitat theory, we propose parametric interest rate models that split the term structure into segments. The proposed models are compared to successful term structure benchmarks based on out-of-sample forecasting exercises using US Treasury data. We show that...

This paper introduces a new tail risk measure based on the risk-neutral excess expected shortfall of a cross-section of stock returns. We propose a novel way to risk neutralize the returns without relying on option price information. Empirically, we illustrate our methodology by estimating a...

Parametric term structure models have been successfully applied to numerous problems in fixed income markets, including pricing, hedging, managing risk, as well as to the study of monetary policy implications. In turn, dynamic term structure models, equipped with stronger economic structure,...

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

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...

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...