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The structure of spot rates and immunization: Some further results

Listed author(s):
  • Eliseo Navarro


    (Universidad de Castilla-la Mancha, Facultad de Ciencias Económicas, Área de Economía Financiera, Plaza de la Universidad, 1, 02071 Albacete, Spain)

  • Juan M. Nave


    (Universidad de Castilla-la Mancha, Facultad de Ciencias Económicas, Área de Economía Financiera, Plaza de la Universidad, 1, 02071 Albacete, Spain)

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    This paper estimates and tests a two-factor model of the term structure of interest rates based on the methodology developed by Elton, Gruber and Michaelly (1990) in an APT context. The model is then enlarged to allow its use for interest rate risk measurement through a duration vector. The results of the model using in-sample data are consistent with those obtained by Principal Components Analysis to explain the term structure behaviour. Finally, the model is tested using out-of-sample data, showing its superiority over a competing model based on the traditional Macaulay's duration.

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    Article provided by Springer & Spanish Economic Association in its journal Spanish Economic Review.

    Volume (Year): 3 (2001)
    Issue (Month): 4 ()
    Pages: 273-294

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    Handle: RePEc:spr:specre:v:3:y:2001:i:4:p:273-294
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