Dynamic Risk Profile of the US Term Structure by Wavelet MRA
AbstractA 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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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0409045.
Date of creation: 18 Sep 2004
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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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Wavelet; Interest rates; Hurst exponent; Term structure; Yield curve;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-CMP-2004-09-30 (Computational Economics)
- NEP-ETS-2004-09-30 (Econometric Time Series)
- NEP-FIN-2004-09-30 (Finance)
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