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An Efficient Generalized Discrete-Time Approach to Poisson-Gaussian Bond Option Pricing in the Heath-Jarrow-Morton Model

Das, Sanjiv Ranjan - 2021

Term structure models employing Poisson-Gaussian processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-Gaussian version of the Heath-Jarrow-Morton model to the pricing" of American-type bond options when the...

Persistent link: https://www.econbiz.de/10013249269

A General Stochastic Volatility Model for the Pricing and Forecasting of Interest Rate Derivatives

Trolle, Anders B. - 2010

We develop a tractable and flexible stochastic volatility multi-factor model of the term structure of interest rates. It features correlations between innovations to forward rates and volatilities, quasi-analytical prices of zero-coupon bond options and dynamics of the forward rate curve, under...

Persistent link: https://www.econbiz.de/10012761268

Corporate Yield Spreads : Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market

Longstaff, Francis A. - 2004

We use the information in credit-default swaps to obtain direct measures of the size of the default and nondefault components in corporate spreads. We find that the majority of the corporate spread is due to default risk. This result holds for all rating categories and is robust to the...

Persistent link: https://www.econbiz.de/10012785748

Interest Rate Expectations Versus Forward Rates : Evidence from an Expectations Survey

Friedman, Benjamin M. - 2022

The object of this paper is to test several familiar hypotheses about the relationship between the forward rates implied by the term structure and interest rate expectations, using the one ongoing systematic survey that samples market participants' expectations. The substitution of survey data...

Persistent link: https://www.econbiz.de/10013323586

Benchmark Interest Rates When the Government is Risky

Augustin, Patrick; Chernov, Mikhail; Schmid, Lukas; … - 2022

across different maturities. Swap rates represent future uncollateralized borrowing between banks. Treasuries should be … expensive and produce yields that are lower than those of maturity matched swap rates, as they are deemed to have superior … explains the negative swap spreads over Treasuries. This view is supported by a quantitative equilibrium model that jointly …

Persistent link: https://www.econbiz.de/10013324707

Regime-Switching Behavior of the Term Structure of Forward Markets

Branson, Elena Tchernykh - 2006

This paper presents techniques for modelling and estimating the behavior of financial market price or return differentials that follow non-linear regime-switching behaviour. The methodology to be used here is estimation of variants of threshold autoregression (TAR) models. In the basic model the...

Persistent link: https://www.econbiz.de/10012783699

Estimating Affine Multifactor Term Structure Models Using Closed-Form Likelihood Expansions

Aït-Sahalia, Yacine - 2010

We develop and implement a technique for closed-form maximum likelihood estimation (MLE) of multifactor affine yield models. We derive closed-form approximations to likelihoods for nine Dai and Singleton (2000) affine models. Simulations show our technique very accurately approximates true (but...

Persistent link: https://www.econbiz.de/10012762894

Option-Based Credit Spreads

Culp, Christopher L. - 2014

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

Persistent link: https://www.econbiz.de/10013039754

The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors

Wang, Jiang - 2010

This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to...

Persistent link: https://www.econbiz.de/10012763736

Arbitrage Opportunities in Arbitrage-Free Models of Bond Pricing

Backus, David - 2008

Mathematical models of bond pricing are used by both academics and Wall Street practitioners, with practitioners introducing time-dependent parameters to fit arbitrage-free models to selected asset prices. We show, in a simple one-factor setting, that the ability of such models to reproduce a...

Persistent link: https://www.econbiz.de/10012774974