This paper proposes and implements a parsimonious three-factor model of the term structure whose dynamics is driven uniquely by observable state variables. This approach allows comparing alternative views on the way state variables – macroeconomic variables, in particular – influence the...

We estimate the long rate and its volatility within the Svensson framework. The procedure that best extrapolates the longest observable rate and its volatility is a 2-dimensional grid search conditioned on the ridge regression suggested by Annaert et al. (2013).

A popular class of yield curve models is based on the Nelson and Siegel approach of 'fitting' yield curve data with simple functions of maturity. However, such models cannot be consistent across time. This article addresses that deficiency by deriving an intertemporally consistent and...

Although statistical term structure models provide exceptional in-sample fitting and out-of-sample forecasting of interest rates, the lack of theoretical background is criticized by academics and practitioners, such as the absent of arbitrage free. In this paper we develop a general...

La correcta medida del riesgo tiene una importancia fundamental en la valoración de activos. Sin embargo, una de las medidas más frecuentemente utilizadas, la varianza, ha recibido críticas debido a que establece una respuesta simétrica para movimientos positivos y negativos en las...

The goal of every investment is to obtain maximum return with minimum risk. Foreign exchange risk could cause that a portfolio return differs from the fundamentals of the assets which composes it. In this paper we study, by using the calibration method, the behaviour and size of the spot,...

Abstract In this paper we present a mathematical model of a generic manufacturing system. The quality of the manufactured product is captured through one or more of its critical design/process parameters. Managers often face the dilemma of which product/process is to be singled out for...