No Arbitrage Priors, Drifting Volatilities, and the Term Structure of Interest Rates
نویسندگان
چکیده
In this paper we propose a method to produce density forecasts of the term structure of government bond yields which takes into account (i) the possible mispeci cation of an underlying Gaussian A¢ ne Term Structure Model (GATSM) and (ii) the time varying volatility of interest rates. In order to do so we derive a Bayesian prior from a GATSM and use it to estimate the coe¢ cients of a BVAR for the term structure, specifying a common, multiplicative, time varying volatility for the VAR disturbances. Results based on U.S. data show that this method signi cantly improves the precision of point and density forecasts of the term structure. The views expressed herein are solely those of the authors and do not necessarily reect the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System. We would like to thank ............ The usual disclaimers apply.
منابع مشابه
Risk Aversion, Intertemporal Substitution, and the Term Structure of Interest Rates
We build and estimate a recursive utility equilibrium model of the term structure of interest rates that prices consistently all risk factors that affect bonds. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model acco...
متن کاملA Two-factor Lognormal Model of the Term Structure and the Valuation of American-Style Options on Bonds
A Two-factor Lognormal Model of the Term Structure and the Valuation of American-Style Options on Bonds We build a no-arbitrage model of the term structure, using two stochastic factors, the shortterm interest rate and the premium of the forward rate over the short-term interest rate. The model extends the lognormal interest rate model of Black and Karasinski (1991) to two factors. It allows fo...
متن کاملThe Valuation of American-style Swaptions in a Two-factor Spot-Futures Model
The Valuation of American-style Swaptions in a Two-factor Spot-Futures Model. We build a no-arbitrage model of the term structure of interest rates using two stochastic factors, the short-term interest rate and the premium of the futures rate over the shortterm interest rate. The model provides an extension of the lognormal interest rate model of Black and Karasinski (1991) to two factors, both...
متن کاملThe Term Structure of Interest - Rate Futures Prices . 1
The Term Structure of Interest-Rate Futures Prices We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. In this model, the term structure shifts and tilts as the factor rate...
متن کاملThe Term Structure of Interest - Rate
The Term Structure of Interest-Rate Futures Prices We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. The term structure shifts and tilts as the factor rates vary. The cro...
متن کامل