Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimating Corporate Yield Curves

Contents:

Author Info

  • Antionio Diaz

    ()
    (Universidad de Castilla-La Mancha - Spain)

  • Frank Skinner

    ()
    (ICMA Centre, University of Reading)

Registered author(s):

    Abstract

    This paper represents the first study of retail deposit spreads of UK financial institutions using stochastic interest rate modelling and the market comparable approach. By replicating quoted fixed deposit rates using the Black Derman and Toy (1990) stochastic interest rate model, we find that the spread between fixed and variable rates of interest can be modeled (and priced) using an interest rate swap analogy. We also find that we can estimate an individual bank deposit yield curve as a spread off a benchmark yield curve. This suggests that we can price a particular bank’s products using arbitrage free interest rate methods since a basic input would be an estimate of the individual bank’s yield curve. Finally, we are able to suggest that the libor/swap is the best benchmark yield curve to estimate an individual bank deposit yield curve.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2001-01.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2001-01.

    as in new window
    Length: 20 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:rdg:icmadp:icma-dp2001-01

    Contact details of provider:
    Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
    Phone: +44 (0) 118 378 8226
    Fax: +44 (0) 118 975 0236
    Web page: http://www.henley.reading.ac.uk/
    More information through EDIRC

    Related research

    Keywords: Credit Risk; Yield Curves; Credit Derivatives;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Vasicek, Oldrich A & Fong, H Gifford, 1982. " Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-48, May.
    2. Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02.
    3. Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
    4. Edwin J. Elton & T. Clifton Green, 1998. "Tax and Liquidity Effects in Pricing Government Bonds," Journal of Finance, American Finance Association, vol. 53(5), pages 1533-1562, October.
    5. Shea, Gary S., 1984. "Pitfalls in Smoothing Interest Rate Term Structure Data: Equilibrium Models and Spline Approximations," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(03), pages 253-269, September.
    6. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-30, June.
    7. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
    8. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 367-378, September.
    9. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Leo Krippner, 2005. "Investigating the Relationships between the Yield Curve, Output and Inflation using an Arbitrage-Free Version of the Nelson and Siegel Class of Yield Curve Models," Working Papers in Economics 05/02, University of Waikato, Department of Economics.
    2. Frank Skinner & Nicholas Papageorgiou, 2001. "Credit Spreads and the Treasury Zero Coupon Spot Curve," ICMA Centre Discussion Papers in Finance icma-dp2001-06, Henley Business School, Reading University, revised Jul 2002.
    3. Diaz, Antonio & Merrick, John Jr. & Navarro, Eliseo, 2006. "Spanish Treasury bond market liquidity and volatility pre- and post-European Monetary Union," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1309-1332, April.
    4. Manzoni, Katiuscia, 2004. "Modeling Eurobond credit ratings and forecasting downgrade probability," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 277-300.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:rdg:icmadp:icma-dp2001-01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ed Quick).

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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