IDEAS home Printed from https://ideas.repec.org/p/cte/wbrepe/9966.html
   My bibliography  Save this paper

Envelopes for the term structure of interest rates

Author

Listed:
  • Balbás, Alejandro
  • López, Susana

Abstract

This paper proposes new measures providing us with the level of sequential arbitrage in a bond market. Each measure generates a concrete proxy for the Term Structure of Interest Rates. The set of proxies allows us to compute the exact market price of any bond, may measure the tax effect, may measure the credit risk when dealing with non-default free bonds. and may solve the usual puzzle when dealing with extendible or callable bonds. Finally, an empirical test of our findings is implemented in the Spanish market

Suggested Citation

  • Balbás, Alejandro & López, Susana, 2000. "Envelopes for the term structure of interest rates," DEE - Working Papers. Business Economics. WB 9966, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:9966
    as

    Download full text from publisher

    File URL: https://e-archivo.uc3m.es/bitstream/handle/10016/9966/wb0053.pdf?sequence=1
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chen, Zhiwu & Knez, Peter J, 1995. "Measurement of Market Integration and Arbitrage," The Review of Financial Studies, Society for Financial Studies, vol. 8(2), pages 287-325.
    2. Kamara, Avraham & Miller, Thomas W., 1995. "Daily and Intradaily Tests of European Put-Call Parity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(4), pages 519-539, December.
    3. Jaime Cuevas Dermody & R. Tyrrell Rockafellar, 1991. "Cash Stream Valuation In the Face of Transaction Costs and Taxes," Mathematical Finance, Wiley Blackwell, vol. 1(1), pages 31-54, January.
    4. Elton, Edwin J & Gruber, Martin J & Michaely, Roni, 1990. "The Structure of Spot Rates and Immunization," Journal of Finance, American Finance Association, vol. 45(2), pages 629-642, June.
    5. Kempf, Alexander & Korn, Olaf, 1998. "Trading System and Market Integration," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 220-239, July.
    6. Alejandro Balbás & Iñaki R. Longarela & Ángel Pardo, 2000. "Integration and arbitrage in the Spanish financial markets: An empirical approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(4), pages 321-344, April.
    7. Hansen, Lars Peter & Jagannathan, Ravi, 1997. "Assessing Specification Errors in Stochastic Discount Factor Models," Journal of Finance, American Finance Association, vol. 52(2), pages 557-590, June.
    8. Alejandro Balbás & MªJosé Muñoz, 1998. "Measuring the degree of fulfillment of the law of one price. Applications to financial market integration," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 153-177, May.
    9. Dermody, Jaime Cuevas & Prisman, Eliezer Zeev, 1988. " Term Structure Multiplicity and Clientele in Markets with Transactions Costs and Taxes," Journal of Finance, American Finance Association, vol. 43(4), pages 893-911, September.
    10. Yacine Aït-Sahalia & Andrew W. Lo, 1998. "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," Journal of Finance, American Finance Association, vol. 53(2), pages 499-547, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Balbás, Alejandro & López, Susana, 2001. "Financial innovation and arbitrage in the Spanish bond market," DEE - Working Papers. Business Economics. WB wb010101, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    2. A. Balbás & S. López, 2008. "Sequential Arbitrage Measurements and Interest Rate Envelopes," Journal of Optimization Theory and Applications, Springer, vol. 138(3), pages 361-374, September.
    3. Alejandro Balbás & María Muñoz-Bouzo, 2002. "Stochastic measures of arbitrage," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 10(2), pages 289-324, December.
    4. Ioannides, Michalis, 2003. "A comparison of yield curve estimation techniques using UK data," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 1-26, January.
    5. Balbás, Alejandro & Garrido, José & Okhrati, Ramin, 2016. "Good deal measurement in asset pricing: Actuarial and financial implications," INDEM - Working Paper Business Economic Series 23546, Instituto para el Desarrollo Empresarial (INDEM).
    6. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    7. Anisha Ghosh & Christian Julliard & Alex P. Taylor, 2017. "What Is the Consumption-CAPM Missing? An Information-Theoretic Framework for the Analysis of Asset Pricing Models," The Review of Financial Studies, Society for Financial Studies, vol. 30(2), pages 442-504.
    8. Dong‐Hyun Ahn & H. Henry Cao & Stéphane Chrétien, 2009. "Portfolio Performance Measurement: a No Arbitrage Bounds Approach," European Financial Management, European Financial Management Association, vol. 15(2), pages 298-339, March.
    9. Stehle, Richard & Jaschke, Stefan R. & Wernicke, S., 1998. "Tax clientele effects in the German bond market," SFB 373 Discussion Papers 1998,11, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    10. Hans Dewachter & Kristien Smedts, 2007. "Limits to international arbitrage: an empirical evaluation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(3), pages 273-285.
    11. Yao, Shujie & He, Hongbo & Chen, Shou & Ou, Jinghua, 2018. "Financial liberalization and cross-border market integration: Evidence from China's stock market," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 220-245.
    12. Alejandro Balbás & MªJosé Muñoz, 1998. "Measuring the degree of fulfillment of the law of one price. Applications to financial market integration," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 153-177, May.
    13. George Tzagkarakis & Juliana Caicedo-Llano & Thomas Dionysopoulos, 2016. "Time-Frequency Adapted Market Integration Measure Based on Hough Transformed Multiscale Decompositions," Computational Economics, Springer;Society for Computational Economics, vol. 48(1), pages 1-27, June.
    14. Bjarne Jensen, 2009. "Valuation before and after tax in the discrete time, finite state no arbitrage model," Annals of Finance, Springer, vol. 5(1), pages 91-123, January.
    15. Chernov, Mikhail, 2003. "Empirical reverse engineering of the pricing kernel," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 329-364.
    16. Jingzhi Huang & Liuren Wu, 2004. "Specification Analysis of Option Pricing Models Based on Time- Changed Levy Processes," Finance 0401002, University Library of Munich, Germany.
    17. José Garrido & Ramin Okhrati, 2018. "Desirable Portfolios in Fixed Income Markets: Application to Credit Risk Premiums," Risks, MDPI, vol. 6(1), pages 1-21, March.
    18. Stefan Jaschke & Richard Stehle & Stephan Wernicke, 2000. "Arbitrage und die Gültigkeit des Barwertprinzips im Markt für Bundeswertpapiere," Schmalenbach Journal of Business Research, Springer, vol. 52(5), pages 440-468, August.
    19. Bakshi, Gurdip & Chen, Zhiwu & Hjalmarsson, Erik, 2005. "Volatility of the Stochastic Discount Factor, and the Distinction between Risk-Neutral and Objective Probability Measures," Working Papers in Economics 159, University of Gothenburg, Department of Economics.
    20. Kasa, Kenneth, 1997. "Consumption-based versus production-based models of international equity markets," Journal of International Money and Finance, Elsevier, vol. 16(5), pages 653-680, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cte:wbrepe:9966. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Poveda (email available below). General contact details of provider: http://www.business.uc3m.es/es/index .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.