A yield-factor model of interest rates
Darrell Duffie,Rui Kan +1 more
TL;DR: In this article, the authors present a consistent and arbitrage-free multifactor model of the term structure of interest rates in which yields at selected fixed maturities follow a parametric muitivariate Markov diffusion process with stochastic volatility.
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Abstract: This paper presents a consistent and arbitrage-free multifactor model of the term structure of interest rates in which yields at selected fixed maturities follow a parametric muitivariate Markov diffusion process with “stochastic volatility.” the yield of any zero-coupon bond is taken to be a maturity-dependent affine combination of the selected “basis” set of yields. We provide necessary and sufficient conditions on the stochastic model for this affine representation. We include numerical techniques for solving the model, as well as numerical techniques for calculating the prices of term-structure derivative prices. the case of jump diffusions is also considered.
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Citations
Analyzing the Term Structure of Interest Rates using the Dynamic Nelson-Siegel Model with
Time-Varying Parameters,Siem Jan Koopman,Michel van der Wel +2 more
- 01 Jan 2007
TL;DR: In this article, the authors introduce time-varying parameters in the dynamic Nelson-Siegel yield curve model for the simultaneous analysis and forecasting of interest rates of different maturities.
16
Pricing Path-Dependent Options with Discrete Monitoring under Time-Changed Lévy Processes
Yuji Umezawa,Akira Yamazaki +1 more
TL;DR: In this paper, a backward recurrence relation for computing the multivariate characteristic function of the intertemporal joint distribution of the time-changed Levy process is derived for path-dependent derivatives with discrete monitoring.
16
Bond Risk Premia and Realized Jump Volatility
Jonathan Wright,Hao Zhou +1 more
TL;DR: In this article, a measure of market jump volatility risk is added to a regression of excess bond returns on the term structure of forward rates, which nearly doubles the R 2 of the regression.
A Dynamic Factor Model of the Yield Curve as a Predictor of the Economy
Marcelle Chauvet,Zeynep Senyuz +1 more
TL;DR: In this paper, a nonlinear multivariate dynamic factor model was proposed to predict the beginning and end of economic recessions at the monthly frequency of the period of the last decade by taking into account not only the popular term spread but also information extracted from the level and curvature of the yield curve and from macroeconomic variables.
Long-horizon yield curve projections: comparison of semi-parametric and parametric approaches
Ken Nyholm,Riccardo Rebonato +1 more
TL;DR: In this article, two methods for evolving forward the yield curve are evaluated and contrasted within a Monte Carlo experiment: one is originally presented by Rebonato et al. (2005) and the other by Bernadell et al (2005).
16
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