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Long-range dependence and multifractality in the term structure of LIBOR interest rates

  • Cajueiro, Daniel O.
  • Tabak, Benjamin M.

In this paper we present evidence of long-range dependence in LIBOR interest rates. We study a data set from 2000 to 2005, for six different currencies and various maturities. Empirical results suggest that the degree of long-range dependence decreases with maturity, with the exception of interest rates on Japanese Yen and on Indonesian Rupiah. Furthermore, interest rates have a multifractal nature and the degree of multifractality is much stronger for Indonesia (emerging market). These findings suggest that interest rates derivatives should take these features into account. Furthermore, fixed income risk and portfolio management should incorporate long-range dependence in the modeling of interest rates.

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Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 373 (2007)
Issue (Month): C ()
Pages: 603-614

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Handle: RePEc:eee:phsmap:v:373:y:2007:i:c:p:603-614
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