IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Quadratic term structure models in discrete time

  • Realdon, Marco

This paper extends the results on quadratic term structure models in continuos time to the discrete time setting. The continuos time setting can be seen as a special case of the discrete time one. Recursive closed form solutions for zero coupon bonds are provided even in the presence of multiple correlated underlying factors. Pricing bond options requires simple integration. Model parameters may well be time dependent without scuppering such tractability. Model estimation does not require a restrictive choice of the market price of risk. The model can also be used for pricing credit risk and is particularly useful when the factors are or depend on periodically released macroeconomic data or corporate financial reports.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B7CPP-4KPX8X0-1/2/b0173fe58c2451fc97536bb68e2bf42b
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Finance Research Letters.

Volume (Year): 3 (2006)
Issue (Month): 4 (December)
Pages: 277-289

as
in new window

Handle: RePEc:eee:finlet:v:3:y:2006:i:4:p:277-289
Contact details of provider: Web page: http://www.elsevier.com/locate/frl

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Michael Johannes, 2004. "The Statistical and Economic Role of Jumps in Continuous-Time Interest Rate Models," Journal of Finance, American Finance Association, vol. 59(1), pages 227-260, 02.
  2. Jan Ericsson, 2005. "Estimating Structural Bond Pricing Models," The Journal of Business, University of Chicago Press, vol. 78(2), pages 707-735, March.
  3. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  4. Duffee, Gregory R, 1999. "Estimating the Price of Default Risk," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 197-226.
  5. Li Chen & Damir Filipović & H. Vincent Poor, 2004. "Quadratic Term Structure Models For Risk-Free And Defaultable Rates," Mathematical Finance, Wiley Blackwell, vol. 14(4), pages 515-536.
  6. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2004. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market," NBER Working Papers 10418, National Bureau of Economic Research, Inc.
  7. Christian Gourieroux & Alain Monfort & Vassilis Polimenis, 2002. "Affine Term Structure Models," Working Papers 2002-49, Centre de Recherche en Economie et Statistique.
  8. Sun, Tong-sheng, 1992. "Real and Nominal Interest Rates: A Discrete-Time Model and Its Continuous-Time Limit," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 581-611.
  9. Markus Leippold & Liuren Wu, 2002. "Design and Estimation of Quadratic Term Structure Models," Finance 0207014, EconWPA.
  10. Sun, Licheng, 2005. "Regime shifts in interest rate volatility," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 418-434, June.
  11. Constantinides, George M, 1992. "A Theory of the Nominal Term Structure of Interest Rates," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 531-52.
  12. Darrell Duffie & Rui Kan, 1996. "A Yield-Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406.
  13. Christian Gourieroux & Razvan Sufana, 2003. "Whishart Quadratic Term Structure Models," Working Papers 2003-50, Centre de Recherche en Economie et Statistique.
  14. Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02.
  15. Leippold, Markus & Wu, Liuren, 2002. "Asset Pricing under the Quadratic Class," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(02), pages 271-295, June.
  16. Ravi Bansal & Hao Zhou, 2002. "Term Structure of Interest Rates with Regime Shifts," Journal of Finance, American Finance Association, vol. 57(5), pages 1997-2043, October.
  17. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May.
  18. Qiang Dai & Kenneth Singleton, 2003. "Term Structure Dynamics in Theory and Reality," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 631-678, July.
  19. Ang, Andrew & Bekaert, Geert, 2002. "Short rate nonlinearities and regime switches," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1243-1274, July.
  20. Li Chen & H. Vincent Poor, 2003. "Markovian Quadratic Term Structure Models For Risk-free And Defaultable Rates," Finance 0303008, EconWPA.
  21. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
  22. Dong-Hyun Ahn & Robert F. Dittmar, 2002. "Quadratic Term Structure Models: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 243-288, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:3:y:2006:i:4:p:277-289. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.