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Multiregime Term Structure Models

Author

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  • Gouriéroux, C.

    (CREST; CEPREMAP)

  • Scaillet, O.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES); UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut d’Administration et de Gestion (IAG))

Abstract

The Ho and Lee model is the analogue for the study of the term structure of interest rates of the binomial tree introduced by Cox, Ross and Rubinstein in the one risky asset case. This model allows only for a small number of deformations of the term structure between two successive dates, and is therefore incompatible with available data. We propose here to reconcile tree approaches and statistical inference. We consider regime models for which the deformation of the term structure may behave randomly in each regime. Questions about constraints induced by no arbitrage are also addressed in a context of asymmetric information between traders and the econometrician in charge with the estimation.

Suggested Citation

  • Gouriéroux, C. & Scaillet, O., 1997. "Multiregime Term Structure Models," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Dec 1997.
  • Handle: RePEc:ctl:louvir:1998002
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/9802.pdf
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    Cited by:

    1. Clement, E. & Gourieroux, C. & Monfort, A., 2000. "Econometric specification of the risk neutral valuation model," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 117-143.

    More about this item

    Keywords

    binomial model; term structure; interest rate; asymmetric information;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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