Advanced Search
MyIDEAS: Login to save this article or follow this journal

"Extended Black" term structure models

Contents:

Author Info

  • Realdon, Marco

Abstract

This paper examines "Extended Black" term structure models (EBTSM), which are multi-factor extensions of the one-factor Black model (Black, F., 1995. Interest rates as options. Journal of Finance 50, 1371-1376). EBTSM are not affected by the admissibility restrictions that plague canonical affine models. EBTSM encompass quadratic models, but unlike in quadratic models bond yields are sufficient statistics to infer the latent factors driving the short interest rate. EBTSM are amenable to econometric estimation despite the need to solve bond pricing equations through finite difference numerical methods. Estimation through the Iterated Extended Kalman filter reveals that a two-factor EBTSM fit well the observed cross section and time series of Japanese Government bond yields. A three-factor EBTSM is also proposed.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6W4W-4XBG1CW-1/2/189877bdacba59a5185a5f558a6d4e1e
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 18 (2009)
Issue (Month): 5 (December)
Pages: 232-238

as in new window
Handle: RePEc:eee:finana:v:18:y:2009:i:5:p:232-238

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Black model Dynamic term structure models Finite difference numerical solution Iterated Extended Kalman filter Term structure of interest rates;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Langetieg, Terence C, 1980. " A Multivariate Model of the Term Structure," Journal of Finance, American Finance Association, vol. 35(1), pages 71-97, March.
  2. Leippold, Markus & Wu, Liuren, 2002. "Asset Pricing under the Quadratic Class," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(02), pages 271-295, June.
  3. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  4. Casassus, Jaime & Collin-Dufresne, Pierre & Goldstein, Bob, 2005. "Unspanned stochastic volatility and fixed income derivatives pricing," Journal of Banking & Finance, Elsevier, vol. 29(11), pages 2723-2749, November.
  5. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
  6. Pierre Collin-Dufresne & Robert S. Goldstein, 2002. "Do Bonds Span the Fixed Income Markets? Theory and Evidence for Unspanned Stochastic Volatility," Journal of Finance, American Finance Association, vol. 57(4), pages 1685-1730, 08.
  7. Constantinides, George M, 1992. "A Theory of the Nominal Term Structure of Interest Rates," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 531-52.
  8. Caio Almeida & José Vicente, 2009. "Are Interest Rate Options Important for the Assessment of Interest Rate Risk?," Working Papers Series 179, Central Bank of Brazil, Research Department.
  9. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
  10. Tang, Huarong & Xia, Yihong, 2007. "An International Examination of Affine Term Structure Models and the Expectations Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(01), pages 41-80, March.
  11. Babbs, Simon H. & Nowman, K. Ben, 1999. "Kalman Filtering of Generalized Vasicek Term Structure Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 115-130, March.
  12. Cheridito, Patrick & Filipovic, Damir & Kimmel, Robert L., 2007. "Market price of risk specifications for affine models: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 83(1), pages 123-170, January.
  13. Haitao Li & Feng Zhao, 2006. "Unspanned Stochastic Volatility: Evidence from Hedging Interest Rate Derivatives," Journal of Finance, American Finance Association, vol. 61(1), pages 341-378, 02.
  14. Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
  15. Dai, Qiang & Singleton, Kenneth J., 2002. "Expectation puzzles, time-varying risk premia, and affine models of the term structure," Journal of Financial Economics, Elsevier, vol. 63(3), pages 415-441, March.
  16. Qiang Dai & Kenneth Singleton, 2003. "Term Structure Dynamics in Theory and Reality," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 631-678, July.
  17. Nowman, K. Ben & Sorwar, Ghulam, 2005. "Derivative prices from interest rate models: results for Canada, Hong Kong, and United States," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 428-438.
  18. Li Chen & Damir Filipović & H. Vincent Poor, 2004. "Quadratic Term Structure Models For Risk-Free And Defaultable Rates," Mathematical Finance, Wiley Blackwell, vol. 14(4), pages 515-536.
  19. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, 02.
  20. Jiang, George & Yan, Shu, 2009. "Linear-quadratic term structure models - Toward the understanding of jumps in interest rates," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 473-485, March.
  21. Qiang Dai & Kenneth J. Singleton, 2000. "Specification Analysis of Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 55(5), pages 1943-1978, October.
  22. Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-76, December.
  23. Dong-Hyun Ahn & Robert F. Dittmar, 2002. "Quadratic Term Structure Models: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 243-288, March.
  24. Qiang Dai & Kenneth J. Singleton & Wei Yang, 2007. "Regime Shifts in a Dynamic Term Structure Model of U.S. Treasury Bond Yields," Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1669-1706, 2007 12.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:18:y:2009:i:5:p:232-238. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.