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Anders B Trolle - One of the best experts on this subject based on the ideXlab platform.
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linear rational Term Structure models
Journal of Finance, 2017Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: (i) ensures non-negative interest rates, (ii) easily accommodates unspanned factors affecting volatility and risk premiums, and (iii) admits semi-analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics-including when interest rates are close to the zero lower bound.
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linear rational Term Structure models
2016Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models, where the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk premiums, and iii) admits semi-analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics — including when interest rates are close to the zero lower bound.
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linear rational Term Structure models
2014Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models, where the state price density is modeled such that bond prices become linear-rational functions of the current state. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk premiums, and iii) admits analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics – including when interest rates are close to the zero lower bound.
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the Term Structure of interbank risk
Journal of Financial Economics, 2013Co-Authors: Damir Filipovic, Anders B TrolleAbstract:We infer a Term Structure of interbank risk from spreads between rates on interest rate swaps indexed to the London Interbank Offered Rate (LIBOR) and overnight indexed swaps. We develop a tractable model of interbank risk to decompose the Term Structure into default and non-default (liquidity) components. From August 2007 to January 2011, the fraction of total interbank risk due to default risk, on average, increases with maturity. At short maturities, the non-default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity. The model also provides a framework for pricing, hedging, and risk management of interest rate swaps in the presence of significant basis risk.
Damir Filipovic - One of the best experts on this subject based on the ideXlab platform.
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linear rational Term Structure models
Journal of Finance, 2017Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models in which the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: (i) ensures non-negative interest rates, (ii) easily accommodates unspanned factors affecting volatility and risk premiums, and (iii) admits semi-analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics-including when interest rates are close to the zero lower bound.
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linear rational Term Structure models
2016Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models, where the state price density is modeled such that bond prices become linear-rational functions of the factors. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk premiums, and iii) admits semi-analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics — including when interest rates are close to the zero lower bound.
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linear rational Term Structure models
2014Co-Authors: Damir Filipovic, Martin Larsson, Anders B TrolleAbstract:We introduce the class of linear-rational Term Structure models, where the state price density is modeled such that bond prices become linear-rational functions of the current state. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk premiums, and iii) admits analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of Term Structure, volatility, and risk premium dynamics – including when interest rates are close to the zero lower bound.
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the Term Structure of interbank risk
Journal of Financial Economics, 2013Co-Authors: Damir Filipovic, Anders B TrolleAbstract:We infer a Term Structure of interbank risk from spreads between rates on interest rate swaps indexed to the London Interbank Offered Rate (LIBOR) and overnight indexed swaps. We develop a tractable model of interbank risk to decompose the Term Structure into default and non-default (liquidity) components. From August 2007 to January 2011, the fraction of total interbank risk due to default risk, on average, increases with maturity. At short maturities, the non-default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity. The model also provides a framework for pricing, hedging, and risk management of interest rate swaps in the presence of significant basis risk.
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Term Structure models driven by wiener processes and poisson measures existence and positivity
Siam Journal on Financial Mathematics, 2010Co-Authors: Damir Filipovic, Stefan Tappe, Josef TeichmannAbstract:In the spirit of [T. Bjork et al., Finance Stoch., 1 (1997), pp. 141-174], we investigate Term Structure models driven by Wiener processes and Poisson measures with forward curve dependent volatilities. This includes a full existence and uniqueness proof for the corresponding Heath-Jarrow-Morton-type Term Structure equation. Furthermore, we characterize positivity preserving models by means of the characteristic coefficients. A key role in our investigation is played by the method of the moving frame, which allows us to transform Term Structure equations to time-dependent SDEs.
Erik Schlogl - One of the best experts on this subject based on the ideXlab platform.
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a square root interest rate model fitting discrete initial Term Structure data
Applied Mathematical Finance, 2000Co-Authors: Erik Schlogl, Lutz SchloglAbstract:This paper presents one-factor and multifactor versions of a Term Structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type 'square root' diffusions with piece wise constant parameters. The model is fitted to initial Term Structures given by a finite number of data points, interpolating endogenously. Closed form and near closed form solutions for a large class of fixed income derivatives are derived in Terms of a compound noncentral chi-square distribution. An implementation of the model is discussed where the initial Term Structure of volatility is fitted via cap prices.
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a square root interest rate model fitting discrete initial Term Structure data
Research Paper Series, 1999Co-Authors: Erik Schlogl, Lutz SchloglAbstract:This paper presents the one- and the multifactor versions of a Term Structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type "square root" diffusions with piecewise constant parameters. This model is fitted to initial Term Structures given by a finite number of data points, interpolating endogenously. Closed form and near-closed form solutions for a large class of fixed income derivatives are derived in Terms of a compound noncentral chi-square distribution. An implementation of the model is discussed where the initial Term Structure of volatility is fitted via cap prices.
Lutz Schlogl - One of the best experts on this subject based on the ideXlab platform.
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a square root interest rate model fitting discrete initial Term Structure data
Applied Mathematical Finance, 2000Co-Authors: Erik Schlogl, Lutz SchloglAbstract:This paper presents one-factor and multifactor versions of a Term Structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type 'square root' diffusions with piece wise constant parameters. The model is fitted to initial Term Structures given by a finite number of data points, interpolating endogenously. Closed form and near closed form solutions for a large class of fixed income derivatives are derived in Terms of a compound noncentral chi-square distribution. An implementation of the model is discussed where the initial Term Structure of volatility is fitted via cap prices.
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a square root interest rate model fitting discrete initial Term Structure data
Research Paper Series, 1999Co-Authors: Erik Schlogl, Lutz SchloglAbstract:This paper presents the one- and the multifactor versions of a Term Structure model in which the factor dynamics are given by Cox/Ingersoll/Ross (CIR) type "square root" diffusions with piecewise constant parameters. This model is fitted to initial Term Structures given by a finite number of data points, interpolating endogenously. Closed form and near-closed form solutions for a large class of fixed income derivatives are derived in Terms of a compound noncentral chi-square distribution. An implementation of the model is discussed where the initial Term Structure of volatility is fitted via cap prices.
Glenn D Rudebusch - One of the best experts on this subject based on the ideXlab platform.
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an arbitrage free generalized nelson siegel Term Structure model
Econometrics Journal, 2009Co-Authors: Jens H E Christensen, Francis X Diebold, Glenn D RudebuschAbstract:The Svensson generalization of the popular Nelson-Siegel Term Structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson-Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed, we show that the factor loadings of the Svensson generalization cannot be obtained in a standard finance arbitrage-free affine Term Structure representation. Therefore, we introduce a closely related generalized Nelson-Siegel model on which the no-arbitrage condition can be imposed. We estimate this new arbitrage-free generalized Nelson-Siegel model and demonstrate its tractability and good in-sample fit.
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a macro finance model of the Term Structure monetary policy and the economy
The Economic Journal, 2008Co-Authors: Glenn D Rudebusch, Tao WuAbstract:This paper develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the Term Structure with standard macroeconomic aggregate relationships for output and inflation. From this new empirical formulation, we obtain several important results: (1) the latent Term Structure factors from finance no-arbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve, and (3) both forward-looking and backward-looking elements play important roles in macroeconomic dynamics.
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a macro finance model of the Term Structure monetary policy and the economy
2003Co-Authors: Glenn D RudebuschAbstract:This article develops and estimates a macro-finance model that combines a canonical affine no-arbitrage finance specification of the Term Structure of interest rates with standard macroeconomic aggregate relationships for output and inflation. Based on this combination of yield curve and macroeconomic Structure and data, we obtain several interesting results: (1) the latent Term Structure factors from no-arbitrage finance models appear to have important macroeconomic and monetary policy underpinnings; (2) there is no evidence of a slow partial adjustment of the policy interest rate by the central bank; and (3) both forward-looking and backward-looking elements play roles in macroeconomic dynamics.
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federal reserve interest rate targeting rational expectations and the Term Structure
1995Co-Authors: Glenn D RudebuschAbstract:The amount of information in the yield curve for forecasting future changes in short rates varies with the maturity of the rates involved. Indeed, spreads between certain long and short rates appear unrelated to future changes in the short rate--contrary to the rational expectations hypothesis of the Term Structure. This paper estimates a daily model of Federal Reserve interest rate targeting behavior, which, accompanied by the maintained hypothesis of rational expectations, explains the varying predictive ability of the yield curve and elucidates the link between Fed policy and the Term Structure.
