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Estimating the Volatility Structure of an Arbitrage-Free Interest Rate Model Via the Futures Markets

Bhar, Ram; Chiarella, Carl; To, Thuy-Duong - EconWPA - 2004

This paper considers a class of Heath-Jarrow-Morton (1992) term structure models, characterized by time deterministic volatilities for the instantaneous forward rate. The bias that arises from using observed futures yields as a proxy for the unobserved instantaneous forward rate is analyzed. The...

Persistent link: https://www.econbiz.de/10005413218

Term Structure of Interest Rates, Yield Curve Residuals, and the Consistent Pricing of Interest Rates and Interest Rate Derivatives

Heidari, Massoud; Wu, Liuren - EconWPA - 2002

Dynamic term structure models (DTSMs) price interest rate derivatives based on the model implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often...

Persistent link: https://www.econbiz.de/10005134665

TRADE POTENTIAL IN AN ENLARGED EUROPEAN UNION: A RECENT APPROACH

Martínez-Galán, Enrique; Fontoura, Maria-Paula; … - EconWPA - 2005

This paper aims to evaluate the trade potential of manufactured products between the members of the EU25 in the threshold of its Eastern enlargement. We estimate, for 2002, a cross-section gravity model, whose coefficients will be used to project the “natural” trade relations between them....

Persistent link: https://www.econbiz.de/10005062628

Long-Run Regressions: Theory and Application to US Asset Markets

Hansen, Charlotte S.; Tuypens, Bjorn E. - EconWPA - 2004

yield significantly predicts up to 69% of the variation in the 10-year S&P 500 real return, and up to 49% of long-run bond …

Persistent link: https://www.econbiz.de/10005413151

Variance Risk Premia

Carr, Peter; Wu, Liuren - EconWPA - 2004

We propose a direct and robust method for quantifying the variance risk premium on financial assets. We theoretically … and numerically show that the risk-neutral expected value of the return variance, also known as the variance swap rate, is … between the realized variance and this synthetic variance swap rate quantifies the variance risk premium. Using a large …

Persistent link: https://www.econbiz.de/10005413197

A Dynamic Equilibrium Model of Real Exchange Rates with General Transaction Costs

Goswami, Gautam; Shrikhande, Milind; Wu, Liuren - EconWPA - 2002

We study the behavior of real exchange rates in a twocountry dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the...

Persistent link: https://www.econbiz.de/10005076998

From Default Probabilities To Credit Spreads: Credit Risk Models Do Explain Market Prices

Denzler, Stefan; Dacorogna, Michel M.; Mueller, Ulrich A.; … - EconWPA - 2005

Credit risk models like Moody’s KMV are now well established in the market and give bond managers reliable estimates of … an out-of-sample setting, it produces consistent results on the European bond market where data are scarce and can be …

Persistent link: https://www.econbiz.de/10005077017

A SETAR model with long-memory dynamics

DUFRENOT, Gilles; GUEGAN, Dominique; PEGUIN-FEISSOLLE, Anne - EconWPA - 2003

This paper presents a 2-regime SETAR model where the process under examination is governed by a long-memory process in the first regime and a short-memory process in the second regime. Persistence properties are studied and methods for locating the threshold parameter are proposed. Such a...

Persistent link: https://www.econbiz.de/10005119075

Phenomenology of the interest curve

BOUCHAUD, Jean-Philippe; CONT, Rama; KAROUI, Nicole EL; … - EconWPA - 1997

prices include a risk premium, comparable to the probable changes of the spot rate between now and maturity, which can be … understood as a `Value-at-Risk' type of pricing. The instantaneous FRC however departs from a simple square-root law. The …

Persistent link: https://www.econbiz.de/10005413172

Methodology and Implementation of Value-at-Risk Measures in Emerging Fixed-Income Markets with Infrequent Trading.

Cortazar, Gonzalo; Bernales, Alejandro; Beuermann, Diether - EconWPA - 2005

This paper deals with the issue of calculating daily Value-at-Risk (VaR) measures within an environment of thin trading … issue for financial risk management in emerging markets. …

Persistent link: https://www.econbiz.de/10005413068