Mean Rate Shifts and Alternative Models of the Interest Rate PDF Download
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Author: Sanjiv R. Das
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
This paper develops and empirically implements a two-factor model of the term structure of interest rates. In addition to the short rate, the additional factor is the mean level of the interest rate. Closed-form solutions for bond prices where the mean follows either a jump process or a diffusion process are provided. The model has sufficiently general theoretical foundations to enable estimation of the time path of the mean interest rate level without specifying a functional form for the stochastic behavior of the mean level. This constitutes a simple methodology which exploits the mathematical structure of the partial differential equations defining bond prices. The pricing performance of the model relative to other models is assessed. The model is also able to capture features of the long end of the term structure.
Author: Sanjiv R. Das
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
Get Book Here
Book Description
This paper develops and empirically implements a two-factor model of the term structure of interest rates. In addition to the short rate, the additional factor is the mean level of the interest rate. Closed-form solutions for bond prices where the mean follows either a jump process or a diffusion process are provided. The model has sufficiently general theoretical foundations to enable estimation of the time path of the mean interest rate level without specifying a functional form for the stochastic behavior of the mean level. This constitutes a simple methodology which exploits the mathematical structure of the partial differential equations defining bond prices. The pricing performance of the model relative to other models is assessed. The model is also able to capture features of the long end of the term structure.
Author: Sanjiv R. Das
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
Get Book Here
Book Description
This paper develops and empirically implements a two-factor model of the term structure of interest rates. In addition to the short rate, the additional factor is the mean level of the interest rate. Closed-form solutions for bond prices where the mean follows either a jump process or a diffusion process are provided. The model has sufficiently general theoretical foundations to enable estimation of the time path of the mean interest rate level without specifying a functional form for the stochastic behavior of the mean level. This constitutes a simple methodology which exploits the mathematical structure of the partial differential equations defining bond prices. The pricing performance of the model relative to other models is assessed. The model is also able to capture features of the long end of the term structure.
Author: Mr.William Lee
Publisher: International Monetary Fund
ISBN: 145185465X
Category : Business & Economics
Languages : en
Pages : 30
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Book Description
This paper assesses the relative importance of alternative explanations for the rise in long-term interest rates in the United States from October 1993 to April 1994. Standard econometric models of the term structure are shown to have a structural break in the early 1980s. An important reason for this change in the traditional term structure relationship appears to be an increase in the responsiveness of long-term rates to changes in the stance of monetary policy. Augmented term structure models that explicitly incorporate the role of monetary policy in determining the level of long-term rates are then constructed. These models track variations in the long-term rate better than traditional term structure models, but still leave a significant fraction of the recent increase in long-term rates unexplained.
Author: Xin Bo
Publisher:
ISBN:
Category : Interest rates
Languages : en
Pages : 0
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Book Description
The paper proposes a procedure for testing the alternative continuous time models of short term riskless interest rates. Parameters estimation and models comparison are presented using the Generalized Method of Moments. An empirical research to LIBOR in US dollar is given and found that the volatility of interest rate changes is to be less sensitive to the interest rate levels in contrast to previous findings. In addition the Brennan-Schwartz model is suggested to be superior to the others in term of data fit under daily observations, and CIR SR model cannot be rejected.
Author: Mr.Vadim Khramov
Publisher: International Monetary Fund
ISBN: 1475591225
Category : Business & Economics
Languages : en
Pages : 27
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Book Description
This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.
Author: René Carmona
Publisher: Springer Science & Business Media
ISBN: 3540270671
Category : Mathematics
Languages : en
Pages : 236
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Book Description
This book presents the mathematical issues that arise in modeling the interest rate term structure by casting the interest-rate models as stochastic evolution equations in infinite dimensions. The text includes a crash course on interest rates, a self-contained introduction to infinite dimensional stochastic analysis, and recent results in interest rate theory. From the reviews: "A wonderful book. The authors present some cutting-edge math." --WWW.RISKBOOK.COM
Author: Basma Bekdache
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
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Book Description
Author: Nicolas Privault
Publisher: World Scientific
ISBN: 9814390860
Category : Business & Economics
Languages : en
Pages : 243
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Book Description
Interest rate modeling and the pricing of related derivatives remain subjects of increasing importance in financial mathematics and risk management. This book provides an accessible introduction to these topics by a step-by-step presentation of concepts with a focus on explicit calculations. Each chapter is accompanied with exercises and their complete solutions, making the book suitable for advanced undergraduate and graduate level students. This second edition retains the main features of the first edition while incorporating a complete revision of the text as well as additional exercises with their solutions, and a new introductory chapter on credit risk. The stochastic interest rate models considered range from standard short rate to forward rate models, with a treatment of the pricing of related derivatives such as caps and swaptions under forward measures. Some more advanced topics including the BGM model and an approach to its calibration are also covered.
Author:
Publisher: Lulu.com
ISBN: 9291316695
Category : Bank capital
Languages : en
Pages : 294
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Book Description
Author: Takashi Yasuoka
Publisher: Bentham Science Publishers
ISBN: 1681086891
Category : Business & Economics
Languages : en
Pages : 325
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Book Description
Interest Rate Modeling for Risk Management presents an economic model which can be used to compare interest rate and perform market risk assessment analyses. The key interest rate model applied in this book is specified under real-world measures, and the result is used as to generate scenarios for interest rates. The book introduces a theoretical framework that allows estimating the market price of interest rate risk. For this, the book starts with a brief explanation of stochastic analysis, and introduces interest rate models such as Heath-Jarrow-Morton, Hull-White and LIBOR models. The real-world model is then introduced in subsequent chapters. Additionally, the book also explains some properties of the real-world model, along with the negative price tendency of the market price for risk and a positive market price of risk (with practical examples). Readers will also find a handy appendix with proofs to complement the numerical methods explained in the book. This book is intended as a primer for practitioners in financial institutions involved in interest rate risk management. It also presents a new perspective for researchers and graduates in econometrics and finance on the study of interest rate models. The second edition features an expanded commentary on real world models as well as additional numerical examples for the benefit of readers.
