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Switching VARMA Term Structure Models - Extended Version

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  • Alain Monfort

    (Crest)

  • Fulvio Pegoraro

    (Crest)

Abstract

The purpose of the paper is to propose a global discrete-time modeling of the term structure of interest ratesable to capture simultaneously the following important features : (i) an historical dynamics of the factor drivingterm structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochasticdiscount factor (SDF) with time-varying and regime-dependent risk-premia; (iii) explicit or quasi explicit formulasfor zero-coupon bond and interest rate derivative prices; (iv) the positivity of the yields at each maturity. The firstfamily of models we develop is given by the Switching Autoregressive Normal (SARN) and the Switching VectorAutoregressive Normal (SVARN) Factor-Based Term Structure Models of order p. The second family of models westudy is given by the Switching Autoregressive Gamma (SARG) and the Switching Vector Autoregressive Gamma(SVARG) Factor-Based Term Structure Models of order p. Regime shifts are described by a Markov chain with(historical) non-homogeneous transition probabilities.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2007-19.

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Length: 48
Date of creation: 2007
Date of revision:
Handle: RePEc:crs:wpaper:2007-19

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Cited by:
  1. Gourieroux, C. & Monfort, A. & Sufana, R., 2010. "International money and stock market contingent claims," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1727-1751, December.
  2. Alain Monfort & Jean-Paul Renne, 2013. "Default, Liquidity, and Crises: an Econometric Framework," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 11(2), pages 221-262, March.
  3. Bertholon, H. & Monfort, A. & Pegoraro, F., 2008. "Econometric Asset Pricing Modelling," Working papers 223, Banque de France.
  4. Monfort, A. & Renne, J-P., 2011. "Credit and liquidity risks in euro area sovereign yield curves," Working papers 352, Banque de France.
  5. Monfort, A. & Pegoraro, F., 2012. "Asset Pricing with Second-Order Esscher Transforms," Working papers 397, Banque de France.
  6. Gourieroux, Christian & Sufana, Razvan, 2011. "Discrete time Wishart term structure models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 815-824, June.
  7. Jardet, C. & Monfort, A. & Pegoraro, F., 2009. "No-arbitrage Near-Cointegrated VAR(p) Term Structure Models, Term Premia and GDP Growth," Working papers 234, Banque de France.

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