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Affine Term-Structure Models: Theory and Implementation

Author

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  • David Bolder

Abstract

Affine models describe the stylized time-series properties of the term structure of interest rates in a reasonable manner, they generalize relatively easily to higher dimensions, and a vast academic literature exists relating to their implementation. This combination of characteristics makes the affine class a natural introductory point for modelling interest rate dynamics. The author summarizes and synthesizes the theoretical and practical specifics relating to this analytically attractive class of models. This summary is accomplished in a self-contained manner with sufficient detail so that relatively few technical points will be left for the reader to ponder. As such, this paper represents a first step towards advancing the Bank of Canada's research agenda in this area, with a view to using these models to assist with practical debt and risk-management problems currently under study.

Suggested Citation

  • David Bolder, 2001. "Affine Term-Structure Models: Theory and Implementation," Staff Working Papers 01-15, Bank of Canada.
    • Handle: RePEc:bca:bocawp:01-15
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Interest rates; Econometric and statistical methods; Debt management;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G0 - Financial Economics - - General

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