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Modelling Specific Interest Rate Risk with Estimation of Missing Data


  • Thomas Siegl
  • Peter Quell


For the treatment of specific interest rate risk, a risk model is suggested, quantifying and combining both market and credit risk components consistently. The market risk model is based on credit spreads derived from traded bond prices. Though traded bond prices reveal a maximum amount of issuer specific information, illiquidity problems do not allow for classical parameter estimation in this context. To overcome this difficulty an efficient multiple imputation method is proposed that also quantifies the amount of risk associated with missing data. The credit risk component is based on event risk caused by correlated rating migrations of individual bonds using a Copula function approach.

Suggested Citation

  • Thomas Siegl & Peter Quell, 2004. "Modelling Specific Interest Rate Risk with Estimation of Missing Data," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(3), pages 283-309.
  • Handle: RePEc:taf:apmtfi:v:12:y:2004:i:3:p:283-309 DOI: 10.1080/1350486042000297243

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    References listed on IDEAS

    1. Tomas Björk & Yuri Kabanov & Wolfgang Runggaldier, 1997. "Bond Market Structure in the Presence of Marked Point Processes," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 211-239.
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    6. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
    7. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
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    9. Brito, R. & Flores, R., 2001. "A Jump Difusion Yield Factor Model of Interest Rate," Finance Lab Working Papers flwp_37, Finance Lab, Insper Instituto de Ensino e Pesquisa.
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