Beta regimes for the Yield Curve
Journal
Journal of Financial Econometrics
ISSN
1479-8409
ISSN-Digital
1479-8417
Type
journal article
Date Issued
2007-05-08
Author(s)
Abstract
We propose an affine term structure model which accommodates nonlinearities in the drift and volatility function of the short-term interest rate. Such nonlinearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formula for the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatility and correlation across yields.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Oxford University Press
Publisher place
Oxford
Volume
5
Number
3
Start page
456
End page
490
Pages
35
Subject(s)
Eprints ID
40068