On Model Selection and Markov-Switching: An Empirical Examination of Term Structure Models with Regime Shifts

We examine several discrete-time term-structure models, in which the short rate is subject to discrete shifts. Our empirical analysis suggests that inquiring which parameters of the short-term interest rate equation are allowed to switch is crucial. Failing to do so may result in switching pricing models that produce no improvement (in terms of pricing) with respect to models which do not allow for regime switching, even when there are clear breaks in the data.

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Year of publication:	2008-04
Authors:	Driffill, John ; Kenc, Turalay ; Sola, Martin ; Spagnolo, Fabio
Institutions:	Departamento de Economía, Universidad Torcuato Di Tella
Subject:	Term structure of interest rates \| bond yields \| stochastic discount factor \| and regime switching

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Extent:	application/pdf
Series:	Department of Economics Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	34 pages
Classification:	E43 - Determination of Interest Rates; Term Structure Interest Rates ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005041758