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A Theory for the Term Structure of Interest Rates

Author

Listed:
  • Thomas Alderweireld

    (DEXIA group,square de Meeus, 1000, Brussels,)

  • Jean Nuyts

    (University of Mons-Hainaut, 20 place du Parc, Mons, Belgium)

Abstract

The Convolution and Master equations governing the time behavior of the term structure of Interest Rates are set up both for continuous variables and for their discretised forms. The notion of Seed is introduced. The discretised theoretical distributions matching the empirical data from the Federal Reserve System (FRS) are deduced from a discretised seed which enjoys remarkable scaling laws. In particular the tails of the distributions are very well reproduced. These results may be used to develop new methods for the computation of the value-at-risk and fixed-income derivative pricing.

Suggested Citation

  • Thomas Alderweireld & Jean Nuyts, 2004. "A Theory for the Term Structure of Interest Rates," Finance 0405029, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0405029
    Note: Type of Document - zip; pages: 33. A latex version can be obtained on http://babbage.sissa.it/cond-mat/0405293
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    More about this item

    Keywords

    Interest rates; Scaling laws; Term structure;

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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