An Empirical Examination of Term Structure Models with Regime Shifts
AbstractWe examine several continuous-time term structure models in which the short rate is subject both to continuous changes and to discrete shifts. Several regime-switching term structure models are developed, with regime-dependence in various combinations of their drift and diffusion parameters. We examine their predictive power. Our empirical analysis suggests that it is important to attempt to specify the switching model correctly: badly parameterized switching models may not be an improvement (in terms of pricing) over models which do not allow for regime switching, even when there are clear breaks in the data.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2003 with number 65.
Date of creation: 01 Aug 2003
Date of revision:
Term structure of interest rates; bond yields; stochastic discount factor/pricing kernel; and regime switching.;
Other versions of this item:
- Kenc, Turalay & John Driffill & Martin Sola, 2003. "An Empirical Examination of Term Structure Models with Regime Shifts," Royal Economic Society Annual Conference 2003 119, Royal Economic Society.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Jardet, C. & Monfort, A. & Pegoraro, F., 2009.
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- Christina Erlwein & Rogemar Mamon, 2009. "An online estimation scheme for a Hull–White model with HMM-driven parameters," Statistical Methods and Applications, Springer, vol. 18(1), pages 87-107, March.
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