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The structure of spot rates and immunization: Some further results

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  • Eliseo Navarro

    ()
    (Universidad de Castilla-la Mancha, Facultad de Ciencias Económicas, Área de Economía Financiera, Plaza de la Universidad, 1, 02071 Albacete, Spain)

  • Juan M. Nave

    ()
    (Universidad de Castilla-la Mancha, Facultad de Ciencias Económicas, Área de Economía Financiera, Plaza de la Universidad, 1, 02071 Albacete, Spain)

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    Abstract

    This paper estimates and tests a two-factor model of the term structure of interest rates based on the methodology developed by Elton, Gruber and Michaelly (1990) in an APT context. The model is then enlarged to allow its use for interest rate risk measurement through a duration vector. The results of the model using in-sample data are consistent with those obtained by Principal Components Analysis to explain the term structure behaviour. Finally, the model is tested using out-of-sample data, showing its superiority over a competing model based on the traditional Macaulay's duration.

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    File URL: http://link.springer.de/link/service/journals/10108/papers/1003004/10030273.pdf
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    Bibliographic Info

    Article provided by Springer in its journal Spanish Economic Review.

    Volume (Year): 3 (2001)
    Issue (Month): 4 ()
    Pages: 273-294

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    Handle: RePEc:spr:specre:v:3:y:2001:i:4:p:273-294

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    Related research

    Keywords: Term structure of interest rates; duration vector; immunization; APT;

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    Cited by:
    1. Lourdes Gómez-Valle & Julia Mart�nez-Rodr�guez, 2010. "Improving the term structure of interest rates: two-factor models," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(3), pages 275-287.
    2. Magdalena Massot Perelló & Juan M. Nave Pineda, 2003. "La hipótesis de las expectativas en el largo plazo: evidencia en el mercado español de deuda pública," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 533-564, September.
    3. Soto, Gloria M., 2004. "Duration models and IRR management: A question of dimensions?," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1089-1110, May.

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