Beta Regimes for the Yield Curve
AbstractWe propose an a±ne term structure model which accommodates non-linearities in the drift and volatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formula for the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatility and correlation across yields.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 244.
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Threshold Regime Switching Model; A±ne Model; Term Structure of Interest Rate; Linearized Kalman Filter;
Other versions of this item:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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