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Switching VARMA Term Structure Models - Extended Version
Alain Monfort,Fulvio Pegoraro +1 more
TL;DR: In this paper, a global discrete-time modeling of the term structure of interest rates is proposed to capture simultaneously the following important features : (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochastic discount factor with time-varying and regime dependent risk-premia; (iii) explicit or quasi explicit formulas for zero-coupon bond and interest rate derivative prices; (iv) the positivity of the yields at each maturity.
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Abstract: The purpose of the paper is to propose a global discrete-time modeling of the term structure of interest rates able to capture simultaneously the following important features : (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochastic discount factor (SDF) with time-varying and regime dependent risk-premia; (iii) explicit or quasi explicit formulas for zero-coupon bond and interest rate derivative prices; (iv) the positivity of the yields at each maturity. The first family of models we develop is given by the Switching Autoregressive Normal (SARN) and the Switching Vector Autoregressive Normal (SVARN) Factor-Based Term Structure Models of order p. The second family of models we study is given by the Switching Autoregressive Gamma (SARG) and the Switching Vector Autoregressive Gamma (SVARG) Factor-Based Term Structure Models of order p. Regime shifts are described by a Markov chain with (historical) non-homogeneous transition probabilities.
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Switching Varma Term Structure Models - Extended Version
TL;DR: In this article, a global discrete-time modeling of the term structure of interest rates is proposed to capture simultaneously the following important features: (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochastic discount factor with time-varying and regime dependent risk-premia; (iii) explicit or quasi explicit formulas for zero-coupon bond and interest rate derivative prices; (iv) the positivity of the yields at each maturity.
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Transform analysis and asset pricing for affine jump-diffusions
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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.
Term Premia and Interest Rate Forecasts in Affine Models
TL;DR: The authors examined the forecasting ability of the affine class of term structure models, where the cross-sectional and time-series characteristics of the term structure are linked in an internally consistent way.