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Dynamic Risk Profile of the US Term Structure by Wavelet MRA

Author

Listed:
  • SUTTHISIT JAMDEE

    (Kent State University)

  • CORNELIS A. LOS

    (Kent State University)

Abstract

A careful examination of interest rate time series from different U.S. Treasury maturities by Wavelet Multiresolution Analysis (MRA) suggests that the first differences of the term structure of interest rate series are periodic or, at least, cyclic, non-stationary, long-term dependent, in particular, anti-persistent. Each nodal time series from a particular maturity has its own uniqueness and accordingly supports the Market Segmentation theory. The findings also imply that affine models are insufficient to describe the dynamics of the interest rate diffusion processes and call for more intensive research that might provide better, most likely fractal or nonlinear, term structure models for each maturity. If this is correct, empirical term structure models may describe chaotic, i.e., diffusion processes with non-unique dynamic equilibria.

Suggested Citation

  • Sutthisit Jamdee & Cornelis A. Los, 2004. "Dynamic Risk Profile of the US Term Structure by Wavelet MRA," Finance 0409045, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0409045
    Note: Type of Document - pdf. Jamdee, Sutthisit and Cornelis A. Los, 'Dynamic Risk Profile of the US Term Structure by Wavelet MRA' (September 2003). Kent State University, Finance Working Paper.
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    File URL: http://econwpa.repec.org/eps/fin/papers/0409/0409045.pdf
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    More about this item

    Keywords

    Wavelet; Interest rates; Hurst exponent; Term structure; Yield curve;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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