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Dynamical systems forced by shot noise as a new paradigm in the interest rate modeling

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  • Alexander L. Baranovski
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    Abstract

    In this paper we give a generalized model of the interest rates term structure including Nelson-Siegel and Svensson structure. For that we introduce a continuous m-factor exponential-polynomial form of forward interest rates and demonstrate its considerably better performance in a fitting of the zero-coupon curves in comparison with the well known Nelson-Siegel and Svensson ones. In the sequel we transform the model into a dynamic model for interest rates by designing a switching dynamical system of the considerably reduced dimension n

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2010-037.pdf
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    Bibliographic Info

    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2010-037.

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    Length: 39 pages
    Date of creation: Jul 2010
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2010-037

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    Related research

    Keywords: forward interest rates; shot noise processes; switching dynamical systems; chaotic Brownian subordination; chaotic maps;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Hautsch, Nikolaus & Hess, Dieter E. & Veredas, David, 2010. "The impact of macroeconomic news on quote adjustments, noise, and informational volatility," CFS Working Paper Series 2010/01, Center for Financial Studies (CFS).
    2. Schmidt, Sandra & Nautz, Dieter, 2010. "Why do financial market experts misperceive future monetary policy decisions?," ZEW Discussion Papers 10-045, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Hautsch, Nikolaus & Yang, Fuyu, 2012. "Bayesian inference in a Stochastic Volatility Nelson–Siegel model," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3774-3792.
    4. Johanna Kappus & Markus Reiß, 2011. "Estimation of the characteristics of a Lévy process observed at arbitrary frequency," SFB 649 Discussion Papers SFB649DP2011-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. Ulrich Horst & Santiago Moreno-Bromberg, 2011. "Efficiency and Equilibria in Games of Optimal Derivative Design," Papers 1107.0839, arXiv.org.
    6. Mengmeng Guo & Wolfgang Karl Härdle, 2010. "Adaptive Interest Rate Modelling," SFB 649 Discussion Papers SFB649DP2010-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    7. Abbassi, Puriya & Nautz, Dieter, 2010. "Monetary transmission right from the start: The (dis)connection netween the money market and the ECB's main refinancing rates," Discussion Papers 2010/7, Free University Berlin, School of Business & Economics.
    8. Juliane Scheffel, 2010. "Honey, I’ll Be Working Late Tonight. The Effect of Individual Work Routines on Leisure Time Synchronization of Couples," SFB 649 Discussion Papers SFB649DP2010-016, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    9. Ulrich Horst & Felix Naujokat, 2010. "Illiquidity and Derivative Valuation," SFB 649 Discussion Papers SFB649DP2010-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    10. Basteck, Christian & Daniëls, Tijmen R. & Heinemann, Frank, 2013. "Characterising equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2620-2637.
    11. Maria Grith & Wolfgang Karl Härdle & Melanie Schienle, 2010. "Nonparametric Estimation of Risk-Neutral Densities," SFB 649 Discussion Papers SFB649DP2010-021, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    12. Ulrich Horst & Traian A. Pirvu & Gonçalo Dos Reis, 2010. "On Securitization, Market Completion and Equilibrium Risk Transfer," SFB 649 Discussion Papers SFB649DP2010-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    13. Fang Yao, 2010. "Aggregate Hazard Function in Price-Setting: A Bayesian Analysis Using Macro Data," SFB 649 Discussion Papers SFB649DP2010-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    14. Wolfgang Karl Härdle & Yarema Okhrin & Weining Wang, 2010. "Uniform confidence bands for pricing kernels," SFB 649 Discussion Papers SFB649DP2010-003, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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