Element contents
Series: Elements in Quantitative Finance
A Practitioner's Guide to Discrete-Time Yield Curve Modelling
With Empirical Illustrations and MATLAB Examples
Published online by Cambridge University Press: 03 December 2020
Summary
This Element is intended for students and practitioners as a gentle and intuitive introduction to the field of discrete-time yield curve modelling. I strive to be as comprehensive as possible, while still adhering to the overall premise of putting a strong focus on practical applications. In addition to a thorough description of the Nelson-Siegel family of model, the Element contains a section on the intuitive relationship between P and Q measures, one on how the structure of a Nelson-Siegel model can be retained in the arbitrage-free framework, and a dedicated section that provides a detailed explanation for the Joslin, Singleton, and Zhu (2011) model.
Information
- Type
- Element
- Information
- Series: Elements in Quantitative FinanceOnline ISBN: 9781108975537Publisher: Cambridge University PressPrint publication: 07 January 2021
References
Adrian, T., Crump, R. K. & Mönch, E. (2013). Pricing the term structure with linear regressions. Journal of Financial Economics, 110, 110–38.Google Scholar
Andreasen, M. & Christensen, B. J. (2015). The sr approach: A new estimation procedure for non-linear and non-gaussian dynamic term structure models. Journal of Econometrics, 184, 420–51.Google Scholar
Ang, A. & Piazzesi, M. (2003). A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables. Journal of Monetary Economics 50(4), 745–87.Google Scholar
Bauer, M. D. & Rudebusch, G. D. (2014). Monetary policy expectations at the zero lower bound. (Working Paper, Federal Reserve Bank of San Francisco)Google Scholar
Bauer, M. D., Rudebusch, G. D. & Wu, J. C. (2012). Correcting estimation bias in dynamic term structure models. Journal of Business & Economic Statistics, 30, 454–67.Google Scholar
Campbell, J. Y. (2018). Financial decisions and markets: A course in asset pricing. Princeton University Press, Princeton, NJ.Google Scholar
CEIOPS. (2010). Risk-free interest rates, extrapolation method. qis 5 background document. (Technical report, https://eiopa.europa.eu/)Google Scholar
Christensen, J. H. E., Diebold, F. X. & Rudebusch, G. D. (2011). The affine arbitrage-free class of Nelson-Siegel term structure models. Journal of Econometrics, 164, 4–20.Google Scholar
Christensen, J. H. E. & Rudebusch, G. D. (2013). Estimating shadow-rate term structure models with near-zero yields. (Working Paper, Federal Reserve Bank of San Francisco)Google Scholar
Coche, j., Nyholm, K. & Sahakyan, V. (2017). Forecasting the term structure of interest rates close to the effective lower bound. (Work in progress)Google Scholar
Creal, D. D. & Wu, J. C. (2017). Monetary policy uncertainty and economic fluctuations. International Economic Review 58(4), 1317–54.Google Scholar
Dai, Q. & Singleton, K. (2000). Specification analysis of affine term structure models. Journal of Finance, 55, 1943–78.Google Scholar
Diebold, F. X. & Li, C. (2006). Forecasting the term structure of government bond yields. Journal of Econometrics, 130, 337–64.Google Scholar
Diebold, F. X. & Rudebusch, G. D. (2013). Yield curve modeling andforecasting: The Dynamic Nelson-Siegel approach. Princeton University Press, Princeton, New Jersey, USA.Google Scholar
Diebold, F. X., Rudebusch, G. D. & Aruoba, S. B. (2006). The macroe-conomy and the yield curve: A dynamic latent factor approach. Journal of Econometrics, 131, 309–38.Google Scholar
Duffie, D. & Kan, R. (1996). A yield-factor model of interest rates. Mathematical Finance, 6, 379–406.Google Scholar
Engsted, T. & Pedersen, T. Q. (2014). Bias-correction in vector autoregressive models: A simulation study. Econometrics, 2, 45–71.Google Scholar
Eser, F., Lemke, W., Nyholm, K., Radde, S. & Vladu, A. L. (2019). Tracing the impact of the ecb’s asset purchase programme on the yield curve. (ECB working paper, no 2293)Google Scholar
Greenwood, R. & Vayanos, D. (2014). Bond supply and excess bond returns. Review of Financial Studies, 27, 663–713.Google Scholar
Gurkaynak, R. S., Sack, B. & Wright, J. H. (2006). The US treasury yield curve: 1961 to present. (Federal Reserve Board Working Paper)Google Scholar
Gurkaynak, R. S. & Wright, J. H. (2012). Macroeconomics and the term structure. Journal of Economic Literature 50(2), 331–67.Google Scholar
Hamilton, J. D. (1994). Time series analysis. Princeton University Press, Princeton, NJ.Google Scholar
Johnson, R. A. & Wichern, D. W. (1992). Applied multivariate statistical analysis. Prentice-Hall, Englewood Cliffs, NJ.Google Scholar
Joslin, S., Singleton, K. J. & Zhu, H. (2011). A new perspective on gaussian dynamic term structure models. Review of Financial Studies, 24, 926–70.Google Scholar
Julier, S. J. & Uhlmann, J. K. (1997). A new extension of the Kalman filter to nonlinear systems. In Proceedings of aerosense: The 11th international symposium on aerospace/defence sensing, simulation and controls.Google Scholar
Julier, S. J. & Uhlmann, J. K. (2004). Unscented filtering and nonlinear estimation. In Proceedings of the IEEE (Vol. 92, p. 401–22).Google Scholar
Karatzas, I. & Shreve, S. E. (1996). Brownian motion and stochastic calculus. Springer, New York.Google Scholar
Kim, D. H. & Priebsch, M. A. (2013). Estimation of multi-factor shadow- rate term structure models. (Unpublished manuscript, Federal Reserve Board)Google Scholar
Kim, D. H. & Wright, J. H. (2005). An arbitrage-free three-factor term structure model and the recent behavior oflong-term yields and distant- horizon forward rates. (Finance and Economics Discussion Series 200533. Board of Governors of the Federal Reserve System, Washington, D.C)Google Scholar
Krippner, L. (2013). Measuring the stance of monetary policy in zero lower bound environments. Economics Letters 118(1), 135–38.Google Scholar
Krippner, L. (2015a). A comment on wu and xia (2015), and the case for two-factor shadow short rates. (CAMA Working Paper 48/2015)Google Scholar
Krippner, L. (2015b). Zero lower bound term structure modeling. Palgrave Macmillan, US.Google Scholar
Lemke, W. & Vladu, A. L. (2017). Below the zero lower bound: a shadow-rate term structure model for the euro area. (European Central Bank Working Paper)Google Scholar
Li, C., Niu, L. & Zeng, G. (2012). A generalized arbitrage-free Nelson-Siegel term structure model with macroeconomic fundamentals. (Xiamen University, Working Paper)Google Scholar
Li, C. & Wei, M. (2013). Term structure modeling with supply factors and the federal reserves large-scale asset purchase programs. International Journal of Central Banking, 9, 3–39.Google Scholar
Litterman, R. & Scheinkman, J. (1991). Common factors affecting bond returns. Journal of Fixed Income, 47, 54–61.Google Scholar
Lutkepohl, H. (1991). Introduction to multiple time series analysis. SpringerVerlag, Berlin.Google Scholar
Mikosch, T. (1998). Elementary stochastic calculus, with finance in view. World Scientific, advanced series on statistical science and probability, vol. 6.Google Scholar
Nelson, C. & Siegel, A. (1987). Parsimonious modeling of yield curves. Journal of Business, 60, 473–89.Google Scholar
Niu, L. & Zeng, G. (2012). The discrete-time framework of the arbitragefree Nelson-Siegel class of term structure models. (Xiamen University, Working Paper)Google Scholar
Nyholm, K. (2008). Strategic asset allocation in fixed-income markets: A MATLAB-based users guide. John Wiley and Sons, UK.Google Scholar
Nyholm, K. (2018). A flexible short-rate based four factor arbitrage-free term structure model with an explicit monetary policy rule. (www.ken-nyholm.com)Google Scholar
Pope, A. L. (1990). Biases of estimators in multivariate non-gaussian autoregressions. J. Time Ser. Anal, 11, 249–258.Google Scholar
Rebonato, R. (2018). Bond pricing and yield curve modelling. Cambridge University Press, UK.Google Scholar
Rebonato, R., Mahal, S., Joshi, M., Bucholz, L. & Nyholm, K. (2005). Evolving yield curves in the real-world measures: A semi-parametric approach. Journal of Risk, 7, 29–62.Google Scholar
Rios, A. D. D. L. (2015). A new linear estimator for gaussian dynamic term structure models. Journal of Business & Economic Statistics, 33, 282–295.Google Scholar
Smith, A. & Wilson, T. (2000). Fitting yield curves with long term constraints. (Technical report, Bacon and Woodrow, August 2000)Google Scholar
Svensson, L. & Soderlind, P. (1997). New techniques to extract market expectations from financial instruments. Journal of Monetary Economics, 40, 383–429.Google Scholar
Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie- Rochester Conference Series on Public Policy, 39, 195–214.Google Scholar
Vasicek, O. (1977). An equilibrium characterization of the term structure. Journal of Financial Economics, 5, 177–88.Google Scholar
Vayanos, V. & Vila, J. (2009). A preferred-habitat model of the term structure ofinterest rates. (NBER Working Paper)Google Scholar
Wan, E. A. & Merwe, R. V. D. (2001). Chapter 7: The unscented kalman filter. In Kalman filtering and neural networks (pp. 221-80). Wiley.Google Scholar
Wu, J. C. & Xia, F. D. (2015). Measuring the macroeconomic impact of monetary policy at the zero lower bound. (NBER Working Paper No. w20117)Google Scholar
Accessibility standard: Unknown
Why this information is here
This section outlines the accessibility features of this content - including support for screen readers, full keyboard navigation and high-contrast display options. This may not be relevant for you.Accessibility Information
Accessibility compliance for the HTML of this element is currently unknown
and may be updated in the future.
- 8
- Cited by