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Dynamic Risk Profile of the US Term Structure by Wavelet MRA

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Author Info

  • SUTTHISIT JAMDEE

    (Kent State University)

  • CORNELIS A. LOS

    (Kent State University)

Abstract

A careful examination of interest rate time series from different U.S. Treasury maturities by Wavelet Multiresolution Analysis (MRA) suggests that the first differences of the term structure of interest rate series are periodic or, at least, cyclic, non-stationary, long-term dependent, in particular, anti-persistent. Each nodal time series from a particular maturity has its own uniqueness and accordingly supports the Market Segmentation theory. The findings also imply that affine models are insufficient to describe the dynamics of the interest rate diffusion processes and call for more intensive research that might provide better, most likely fractal or nonlinear, term structure models for each maturity. If this is correct, empirical term structure models may describe chaotic, i.e., diffusion processes with non-unique dynamic equilibria.

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File URL: http://128.118.178.162/eps/fin/papers/0409/0409045.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0409045.

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Date of creation: 18 Sep 2004
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Handle: RePEc:wpa:wuwpfi:0409045

Note: Type of Document - pdf. Jamdee, Sutthisit and Cornelis A. Los, 'Dynamic Risk Profile of the US Term Structure by Wavelet MRA' (September 2003). Kent State University, Finance Working Paper.
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Web page: http://128.118.178.162

Related research

Keywords: Wavelet; Interest rates; Hurst exponent; Term structure; Yield curve;

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