Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
| Autor: | Wolfgang Lemke, Theofanis Archontakis |
|---|---|
| Rok vydání: | 2008 |
| Předmět: |
Bond pricing
Term structure of interest rates Threshold models Theorieanwendung Economics Bond media_common.quotation_subject Yield (finance) Finanzwirtschaft Rechnungswesen Wirtschaft SETAR Interest rate theory application Financial Planning Accountancy Autoregressive model Bond valuation Wirtschaftsstatistik Ökonometrie Wirtschaftsinformatik ddc:330 Yield curve Statistical physics Threshold model General Economics Econometrics and Finance Finance Economic Statistics Econometrics Business Informatics media_common Mathematics |
| Zdroj: | Quantitative Finance |
| Popis: | This paper derives analytical solutions for arbitrage-free bond yields when the short-term interest rate follows an autoregressive process with the intercept switching endogenously. This process from the SETAR family is especially suited to capture the near-unit-root behavior typically observed in the evolution of short-term interest rates. The derived yield functions, mapping the one-month rate into n-period yields, exhibit a convex/concave shape to the left and the right of the threshold value, respectively; a pattern which is also found in US bond yield data. The longer the time to maturity, the more distinct the nonlinearity of the yield function becomes. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|