A non-parametric investigation of risk premia
This paper studies determinants of risk premia using a non-parametric term-structure model of the corporate spread. The model, which measures the extra return of defaultable corporate bonds on their government counterparts, involves the rate of inflation, a key macroeconomic variable that is found to explain the spread non-linearly. This study shows that non-linear methods are useful to investigate features of credit risk and that they give better results than their linear counterparts, enabling testing of affine term-structure specifications. The paper also shows how the non-linear model can be used to forecast the future course of the spread.
|Date of creation:||11 Feb 2008|
|Date of revision:||15 Apr 2009|
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Web page: https://mpra.ub.uni-muenchen.de
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- Gregory R. Duffee, 1998. "The Relation Between Treasury Yields and Corporate Bond Yield Spreads," Journal of Finance, American Finance Association, vol. 53(6), pages 2225-2241, December.
- Manuel Arapis & Jiti Gao, 2006.
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- Arapis, Manuel & Gao, Jiti, 2004. "Empirical comparisons in short-term interest rate models using nonparametric methods," MPRA Paper 11974, University Library of Munich, Germany, revised 23 Dec 2005.
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1160, Cowles Foundation for Research in Economics, Yale University.
- Oliver Linton & E. Mammen & J. Nielsen, 1999. "The existence and asymptotic properties of a backfitting projection algorithm under weak conditions," LSE Research Online Documents on Economics 300, London School of Economics and Political Science, LSE Library.
- Oliver Linton & Enno Mammen & N Nielsen, 2000. "The Existence and Asymptotic Properties of a Backfitting Projection Algorithm under Weak Conditions," STICERD - Econometrics Paper Series 386, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Enno Mammen & Oliver Linton & J Nielsen, 2000. "The existence and asymptotic properties of a backfitting projection algorithm under weak conditions," LSE Research Online Documents on Economics 2315, London School of Economics and Political Science, LSE Library.
- Gregory R. Duffee, 1996.
"Estimating the price of default risk,"
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96-29, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Ang, Andrew & Piazzesi, Monika, 2003.
"A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables,"
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Elsevier, vol. 50(4), pages 745-787, May.
- Andrew Ang & Monika Piazzesi, 2001. "A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables," NBER Working Papers 8363, National Bureau of Economic Research, Inc.
- Ahn, Dong-Hyun & Gao, Bin, 1999. "A Parametric Nonlinear Model of Term Structure Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 721-62.
- Ait-Sahalia, Yacine, 1996.
"Nonparametric Pricing of Interest Rate Derivative Securities,"
Econometric Society, vol. 64(3), pages 527-60, May.
- Yacine Ait-Sahalia, 1995. "Nonparametric Pricing of Interest Rate Derivative Securities," NBER Working Papers 5345, National Bureau of Economic Research, Inc.
- De Gooijer, Jan G. & Hyndman, Rob J., 2006. "25 years of time series forecasting," International Journal of Forecasting, Elsevier, vol. 22(3), pages 443-473.
- Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02.
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