We propose a multivariate nonparametric technique for generating reliable historical yield curve scenarios and confidence intervals. The approach is based on a Functional Gradient Descent (FGD) estimation of the conditional mean vector and volatility matrix of a multivariate interest rate...

Recent empirical studies have demonstrated that behaviour of interest rate processes can be better explained if standard diffusion processes are augmented with jumps in the interest rate process. In this paper we examine the performance of both linear and non-linear one factor CKLS model in the...

Data in which each observation is a curve occur in many applied problems. This paper explores prediction in time series in which the data is generated by a curve-valued autoregression process. It develops a novel technique, the predictive factor decomposition, for estimation of the...

In this paper we study corporate debt values, capital structure, and the term structure of interest rates in a unified framework. We employ numerical techniques to compute the firm's optimal capital structure and the value of its long-term risky debt and yield spreads when the value of the...

Governments face a trade-off between insuring bondholders and taxpayers. If the government fully insures bondholders by manufacturing risk-free zero-beta debt, then it cannot also insure taxpayers against permanent macroeconomic shocks over long horizons. Instead, taxpayers will pay more in...

The social rate of discount is a crucial driver of the social cost of carbon (SCC), i.e. the expected present discounted value of marginal damages resulting from emitting one ton of carbon today. Policy makers should set carbon prices to the SCC using a carbon tax or a competitive permits...

The term structure of interest rates does not adhere to the expectations hypothesis, possibly due to a risk premium. We consider the implications of a risk premium that arises from endogenous market segmentation driven by variable inflation rates. In the absence of autocorrelation in inflation,...

This paper applies a recently developed method (Inoue and Rossi, 2021) to estimate functional inflation expectations and ex-ante real interest rate shocks, and then examines their macroeconomic effects in the context of a Functional Vector Autoregressive model with exogenous variables...