An Econometric Model of the Term Structure of Interest-Rate Swap Yields
Abstract
This article develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, the authors are able to compute model-based estimates of the defaultable zero-coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero-coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade. Copyright 1997 by American Finance Association.Download Info
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 52 (1997)
Issue (Month): 4 (September)
Pages: 1287-1321
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Handle: RePEc:bla:jfinan:v:52:y:1997:i:4:p:1287-1321
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For corrections or technical questions regarding this item, or to correct its listing, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
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