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Stress-Test Exercises and the Pricing of Very Long-Term Bonds

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  • Gourieroux, Christian

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  • Dubecq, Simon
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    Abstract

    In the first part of this thesis, we introduce a new methodology for stress-test exercises. Our approach allows to consider richer stress-test exercises, which assess the impact of a modification of the whole distribution of asset prices’ factors, rather than focusing as the common practices on a single realization of these factors, and take into account the potential reaction to the shock of the portfolio manager. The second part of the thesis is devoted to the pricing of bonds with very long-term time-to-maturity (more than ten years). Modeling the volatility of very long-term rates is a challenge, due to the constraints put by no-arbitrage assumption. As a consequence, most of the no-arbitrage term structure models assume a constant limiting rate (of infinite maturity). The second chapter investigates the compatibility of the so-called "level" factor, whose variations have a uniform impact on the modeled yield curve, with the no-arbitrage assumptions. We introduce in the third chapter a new class of arbitrage-free term structure factor models, which allows the limiting rate to be stochastic, and present its empirical properties on a dataset of US T-Bonds.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/11793/1/2013PA090001.pdf
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    This book is provided by Paris Dauphine University in its series Economics Thesis from University Paris Dauphine with number 123456789/11793 and published in 2013.

    Order: http://basepub.dauphine.fr/xmlui/handle/123456789/11793
    Handle: RePEc:dau:thesis:123456789/11793

    Note: dissertation
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    Related research

    Keywords: Choc; Copule; Risque Extrême; Tests de Résistance; Modèle à Facteur; Risque Systémique; Gestion de Portefeuille; Obligations Souveraines; Taux d’intérêt; Structure par Terme; Modèle Affine; Facteur Niveau; Facteur Pente; Distribution Stable; Taux de Long-Terme Stochastique; Absence d'arbitrage; Shock; Copula; Extreme Risk; Stress-Tests; Factor Model; Systemic Risk; Portfolio Management; Sovereign Bonds; Interest Rate; Term Structure; Affine Model; No Arbitrage; Level Factor; Slope Factor; Stable Distribution; Stochastic Long-Term Rate;

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