A Simple Model of the Nominal Term Structure of Interest Rates
AbstractThis paper presents a simple two-factor model of nominal term structure of interest rates, in which the log-price kernel has an autoregressive drift process and a nonlinear GARCH volatility process. With these two state-variable processes, closed-form solutions are derived for zero-coupon bond prices as well as yield to maturity for a given time to maturity.
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Bibliographic InfoPaper provided by University of Waterloo, Department of Economics in its series Working Papers with number 08011.
Date of creation: Dec 2008
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
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