Bayesian extensions to Diebold-Li term structure model
AbstractThis paper proposes a statistical model to adjust, interpolate, and forecast the term structure of interest rates. The model is based on the extensions for the term structure model of interest rates proposed by Diebold and Li (2006), through a Bayesian estimation using Markov Chain Monte Carlo (MCMC). The proposed extensions involve the use of a more flexible parametric form for the yield curve, allowing all the parameters to vary in time using a structure of latent factors, and the addition of a stochastic volatility structure to control the presence of conditional heteroskedasticity observed in the interest rates. The Bayesian estimation enables the exact distribution of the estimators in finite samples, and as a by-product, the estimation enables obtaining the distribution of forecasts of the term structure of interest rates. Unlike some econometric models of term structure, the methodology developed does not require a pre-interpolation of the yield curve. The model is fitted to the daily data of the term structure of interest rates implicit in SWAP DI-PRÉ contracts traded in the Mercantile and Futures Exchange (BM&F) in Brazil. The results are compared with the other models in terms of fitting and forecasts.
Download InfoIf 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.
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 InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 19 (2010)
Issue (Month): 5 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620166
Term structure Bayesian inference Markov Chain Monte Carlo;
Other versions of this item:
- Laurini, Márcio P. & Hotta, Luiz K., 2008. "Bayesian extensions to diebold-li term structure model," Insper Working Papers wpe_122, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
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.:
- Oliver B. Linton & Enno Mammen & J. Nielsen & Carsten Tanggaard, 2000.
"Yield Curve Estimation by Kernel Smoothing Methods,"
Econometric Society World Congress 2000 Contributed Papers
0235, Econometric Society.
- Linton, Oliver & Mammen, Enno & Nielsen, Jans Perch & Tanggaard, Carsten, 2001. "Yield curve estimation by kernel smoothing methods," Journal of Econometrics, Elsevier, vol. 105(1), pages 185-223, November.
- Oliver Linton & Enno Mammen & Jens Perch Nielsen & C Tanggaard, 2000. "Yield Curve Estimation by Kernel Smoothing Methods," STICERD - Econometrics Paper Series /2000/385, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Oliver Linton & Enno Mammen & Jens Perch Nielsen & C Tanggaard, 2000. "Yield curve estimation by kernel smoothing methods," LSE Research Online Documents on Economics 2270, London School of Economics and Political Science, LSE Library.
- McCulloch, J Huston, 1971.
"Measuring the Term Structure of Interest Rates,"
The Journal of Business,
University of Chicago Press, vol. 44(1), pages 19-31, January.
- Tom Doan, . "RATS program to estimate term structure with cubic splines," Statistical Software Components RTZ00019, Boston College Department of Economics.
- Diebold, Francis X. & Li, Canlin & Yue, Vivian Z., 2008.
"Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach,"
Journal of Econometrics,
Elsevier, vol. 146(2), pages 351-363, October.
- Francis X. Diebold & Canlin Li & Vivian Z. Yue, 2007. "Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach," NBER Working Papers 13588, National Bureau of Economic Research, Inc.
- Diebold, Francis X. & Li, Canlin & Yue, Vivian Z., 2007. "Global yield curve dynamics and interactions: A dynamic Nelson-Siegel approach," CFS Working Paper Series 2008/27, Center for Financial Studies (CFS).
- Francis X. Diebold & Canlin Li & Vivian Z. Yue, 2007. "Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach," PIER Working Paper Archive 07-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Michael J. Brennan and Eduardo S. Schwartz., 1979. "A Continuous-Time Approach to the Pricing of Bonds," Research Program in Finance Working Papers 85, University of California at Berkeley.
- Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-92.
- Francis X. Diebold & Canlin Li, 2003.
"Forecasting the Term Structure of Government Bond Yields,"
NBER Working Papers
10048, National Bureau of Economic Research, Inc.
- Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
- Diebold, Francis X. & Li, Canlin, 2003. "Forecasting the term structure of government bond yields," CFS Working Paper Series 2004/09, Center for Financial Studies (CFS).
- Francis X. Diebold & Canlin Li, 2002. "Forecasting the Term Structure of Government Bond Yields," Center for Financial Institutions Working Papers 02-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
- Brennan, Michael J. & Schwartz, Eduardo S., 1979. "A continuous time approach to the pricing of bonds," Journal of Banking & Finance, Elsevier, vol. 3(2), pages 133-155, July.
- 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.
- Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
- Shea, Gary S., 1984. "Pitfalls in Smoothing Interest Rate Term Structure Data: Equilibrium Models and Spline Approximations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(03), pages 253-269, September.
- Márcio Poletti Laurini, 2014.
"Dynamic functional data analysis with non-parametric state space models,"
Journal of Applied Statistics,
Taylor & Francis Journals, vol. 41(1), pages 142-163, January.
- Márcio Laurini, 2012. "Dynamic Functional Data Analysis with Nonparametric State Space Models," IBMEC RJ Economics Discussion Papers 2012-01, Economics Research Group, IBMEC Business School - Rio de Janeiro.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.