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An Analysis Of The Interest Rate Term Structure Using Markov Switching Vector Autoregressive Model And The Models Forecasting Performance
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Book Synopsis An Analysis of the Interest Rate Term Structure Using Markov-Switching Vector Autoregressive Model and the Model's Forecasting Performance by : Xiaoneng Zhu
Download or read book An Analysis of the Interest Rate Term Structure Using Markov-Switching Vector Autoregressive Model and the Model's Forecasting Performance written by Xiaoneng Zhu and published by . This book was released on 2005 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Empirical Analysis of the EU Term Structure of Interest Rates by : Zurab Kotchlamazashvili
Download or read book Empirical Analysis of the EU Term Structure of Interest Rates written by Zurab Kotchlamazashvili and published by Logos Verlag Berlin GmbH. This book was released on 2014 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: The information about the properties and dynamics of term structure and its modeling hold tremendous interest for financial practitioners and policymakers alike. Accurate forecasting of the term structure of interest rates also plays a very important role for many reasons, particularly for bond portfolio and risk management, hedging derivatives, monetary and debt policy. The present dissertation contains the empirical research for the EU term structure of interest rates. The data analyzed here cover a time series based on the Euro and currencies of other six EU countries. The goal is to examine empirical properties and analyze in-sample and out-of-sample results for corresponding spot rates using 15 competitor GARCH(1,1) models with different distributional assumptions. Alltogether, the work summarizes 1680 x GARCH(1,1) in-sample and over 60000 x GARCH(1,1) out-of-sample estimation results. Moreover, the dissertation consists of 48 figures and 98 tables.
Book Synopsis Modeling the Term Structure of Interest Rates by : Rajna Gibson
Download or read book Modeling the Term Structure of Interest Rates written by Rajna Gibson and published by Now Publishers Inc. This book was released on 2010 with total page 171 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.
Book Synopsis Switching VARMA Term Structure Models by : Alain Monfort
Download or read book Switching VARMA Term Structure Models written by Alain Monfort and published by . This book was released on 2007 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Switching Varma Term Structure Models by : Alain Monfort
Download or read book Switching Varma Term Structure Models written by Alain Monfort and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this article is to propose a global discrete-time modeling of the term structure of interest rates which is able to capture simultaneously the following important features: (i) a historical dynamics of the factor driving term structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochastic discount factor (SDF) with time-varying and regime-dependent risk-premia; (iii) explicit or quasi explicit formulas for zero-coupon bond (ZCB) and interest rate derivative prices. We develop the switching autoregressive normal (SARN) and the switching vector autoregressive normal (SVARN) Factor-Based Term Structure Models of order p. The factor is considered as a latent variable or an observable variable: in the second case the factor is a vector of several yields. Regime shifts are described by a Markov chain with (historical) nonhomogeneous transition probabilities. An empirical analysis of bivariate VAR(p) and SVARN(p) Factor-Based Term Structure Models, using monthly observations of the U.S. term structure of interest rates, and a goodness-of-fit and expectation hypothesis puzzle comparison with competing models in the literature, shows the determinant role played by the observable nature of the factor, lags, and switching regimes in the term structure modeling.
Book Synopsis An Econometric Model of the Term Structure of Interest Rates Under Regime-Switching Risk by : Shu Wu
Download or read book An Econometric Model of the Term Structure of Interest Rates Under Regime-Switching Risk written by Shu Wu and published by . This book was released on 2008 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops and estimates a continuous-time model of the term structure of interests under regime shifts. The model features an analytically simple representation of Markov regime shifts that helps elucidate the effect of regime shifts on the yield curve and give a clear interpretation of regime-switching risk premiums. The model falls within the broad class of essentially affine models with a closed form solution of the yield curve, yet it is flexible enough to accommodate priced regime-switching risk, time-varying transition probabilities, regime-dependent mean reversion coefficients as well as stochastic volatilities within each regime. A two-factor version of the model is implemented using Efficient Method of Moments. Empirical results show that the model can account for many salient features of the yield curve in the U.S.
Book Synopsis Estimating var models for the term structure of interest rates by :
Download or read book Estimating var models for the term structure of interest rates written by and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Nessa dissertação seguimos o artigo de Evans e Marshall (1998) e propomos novas abordagens para modelar o desenvolvimento conjunto de variáveis macroeconômicas e retornos de títulos de renda fixacom diversas maturidades. Os modelos são estimados e comparados com outros, já tradicionais na literatura, baseados em modelos auto-regresivos univariados ou de correção de erros. em seguida, os novos modelos são utilizados para avaliar se a informação contida nas variáveis macroeconômicas e na estrutura a termo das taxas de juros ajuda a melhorar a capacidade de previsão. A principal conclusão é que, se o interese maior está em previsões de curto prazo, então não há melhoria significativa ao agregar outras informações que não sejam aquelas já contidas em observações passadas do próprio rendimento em questão. se, no entanto, o interesse maior está em previsões de longo prazo (que é o caso de fundos de previdência, sejam eles abertos ou fechados), então a informação inerente às variáveis macroeconômicas consegue melhorar o desempenho preditivo.
Book Synopsis Analyzing the Term Structure of Interest Rates Using the Dynamic Nelson-Siegel Model with Time-Varying Parameters by : Siem Jan Koopman
Download or read book Analyzing the Term Structure of Interest Rates Using the Dynamic Nelson-Siegel Model with Time-Varying Parameters written by Siem Jan Koopman and published by . This book was released on 2011 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we introduce time-varying parameters in the dynamic Nelson-Siegel yield curve model for the simultaneous analysis and forecasting of interest rates of different maturities, known as the term structure. The Nelson-Siegel model has been recently reformulated as a dynamic factor model where the latent factors are interpreted as the level, slope and curvature of the term structure. The factors are modeled jointly as a vector autoregressive process. We propose to extend this framework in two directions. First, the factor loadings in the Nelson-Siegel yield model depend on a single loading parameter. We allow this parameter to be time-varying by treating it as the fourth latent factor that is modeled jointly with the other factors in the vector autoregressive process. Second, we investigate in detail whether the overall volatility in interest rates is constant over time. For this purpose, we introduce a common volatility component that is specified as a GARCH (generalized autoregressive conditional heteroskedasticity) process. The common volatility component is scaled separately for each maturity by an unknown coefficient. We further investigate whether the innovations of the factors are also subject to a common volatility component. Based on a dataset of yield curves that is analyzed by others, we present empirical evidence of considerable increases in within-sample goodness-of-fit when time-varying loadings and volatilities in the dynamic Nelson-Siegel yield model are introduced.
Book Synopsis Rational Expectations in a VAR with Markov Switching by : Mårten Blix
Download or read book Rational Expectations in a VAR with Markov Switching written by Mårten Blix and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Markov-Switching Vector Autoregressions by : Hans-Martin Krolzig
Download or read book Markov-Switching Vector Autoregressions written by Hans-Martin Krolzig and published by Springer. This book was released on 2014-03-12 with total page 357 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book contributes to re cent developments on the statistical analysis of multiple time series in the presence of regime shifts. Markov-switching models have become popular for modelling non-linearities and regime shifts, mainly, in univariate eco nomic time series. This study is intended to provide a systematic and operational ap proach to the econometric modelling of dynamic systems subject to shifts in regime, based on the Markov-switching vector autoregressive model. The study presents a comprehensive analysis of the theoretical properties of Markov-switching vector autoregressive processes and the related statistical methods. The statistical concepts are illustrated with applications to empirical business cyde research. This monograph is a revised version of my dissertation which has been accepted by the Economics Department of the Humboldt-University of Berlin in 1996. It con sists mainly of unpublished material which has been presented during the last years at conferences and in seminars. The major parts of this study were written while I was supported by the Deutsche Forschungsgemeinschajt (DFG), Berliner Graduier tenkolleg Angewandte Mikroökonomik and Sondeiforschungsbereich 373 at the Free University and Humboldt-University of Berlin. Work was finally completed in the project The Econometrics of Macroeconomic Forecasting founded by the Economic and Social Research Council (ESRC) at the Institute of Economies and Statistics, University of Oxford. It is a pleasure to record my thanks to these institutions for their support of my research embodied in this study.
Book Synopsis The Term Structure of Interest Rates, Monetary Policy, and Macroeconomy by : Fan Dora Xia
Download or read book The Term Structure of Interest Rates, Monetary Policy, and Macroeconomy written by Fan Dora Xia and published by . This book was released on 2014 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the relationship between the term structure of interest rates, monetary policy, and macroeconomy. The first chapter, A Parsimonious No-Arbitrage Term Structure Model that is Useful for Forecasting, offers a solution to a well-known puzzle in the term structure literature. The puzzle is that while the level, slope and curvature (or the first three principal components of yields) can quite accurately summarize the cross-section of yields at any point in time, different functions of interest rates and other macroeconomic variables appear to be helpful when the goal is to predict future interest rates. My paper proposes a parsimonious representation to capture this feature in a large dataset. In the first step, I run reduced rank regressions of one-year excess returns on a panel of 131 macroeconomic variables and initial forward rates from 1964 to 2007. I find that a single linear combination of macroeconomic variables and forward rates can predict excess returns on two- to five-year maturity bonds with R-squared up to 0.71. The forecasting factor subsumes the tent-shaped linear combination of forward rates constructed by Cochrane and Piazzesi (2003) and explains excess returns better. In the second step, I estimate a restricted Gaussian Affine Term Structure Model (GATSM) with the level, slope and curvature commonly used by most term structure models along with the forecasting factor. Restrictions are derived based on the fact that while cross-sectional information in yields is spanned by the level, slope and curvature, cross-sectional information in expected excess returns is spanned by the forecasting factor. Compared with a conventional GATSM only including the level, slope and curvature, the restricted four-factor GATSM generates plausible countercyclical term premia. The second and third chapter focus on the recent zero lower bound (ZLB) period. In the second chapter, Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound, coauthored with Cynthia Wu, we employ an approximation that makes a nonlinear shadow rate term structure model (SRTSM) extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. We show that such a model offers a better description of the data compared to the widely used GATSM. Moreover, the model can be used to summarize the macroeconomic effects of unconventional monetary policy at the ZLB. Using a simple factor-augmented vector autoregression (FAVAR), we show that the shadow rate calculated by our model exhibits similar dynamic correlations with macro variables of interest in the period since 2009 as the fed funds rate did in data prior to the Great Recession. This result gives us a tool for measuring the effects of monetary policy under the ZLB, using either historical estimates based on the fed funds rate or less precisely measured estimates inferred solely from the new data for the shadow rate alone. We show that the Fed has used unconventional policy measures to successfully lower the shadow rate. Our estimates imply that the Fed's efforts to stimulate the economy since 2009 have succeeded in lowering the unemployment rate by 0.13% relative to where it would have been in the absence of these measure. The third chapter, Effects of Unconventional Monetary Policies on the Term Structure of Interest Rates, offers a complete characterization of effects of unconventional monetary policies on interest rates by examining policies' impacts on the whole yield curve. I make use of the SRTSM to summarize all interest rates with factors of lower dimension so that I can capture responses of all interest rates in a parsimonious way. By investigating how policy announcements affect the three factors and then the whole forward curve accordingly, I find that during the ZLB period, forward rate with short maturities are constrained, while forward rates with long maturities still respond to policy announcements. Following each easing (tightening) policy announcement, long forward rates would decrease (increase) by 10 basis points on average.
Book Synopsis Simulating Term Structure of Interest Rates with Arbitrary Marginals by : Andrea Consiglio
Download or read book Simulating Term Structure of Interest Rates with Arbitrary Marginals written by Andrea Consiglio and published by . This book was released on 2007 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Decision models under uncertainty need to be feeded with scenarios of the interest rate curve. Such scenarios have to comply, as close as possible, with the empirical distribution of each rate. Simulation models of the term structure usually assume that the conjugate distribution of the interest rates is lognormal. Dynamic models, like vector auto-regression, implicitly postulate that the logarithm of the interest rates is normally distributed.Statistical analyses have, however, shown that stationary transformations (yield changes) of the interest rates are substantially leptokurtic, thus posing serious doubts on the reliability of the available models.We propose in this paper a vector autoregressive model to simulate term structure of the interest rates with arbitrary marginals. We will show that our model is able to simulate paths of the entire term structure with distributional properties very close to those found in the empirical data.
Book Synopsis Predicting the Term Structure of Interest Rates by : Michiel De Pooter
Download or read book Predicting the Term Structure of Interest Rates written by Michiel De Pooter and published by . This book was released on 2010 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We assess the relevance of parameter uncertainty, model uncertainty, and macroeconomic information for forecasting the term structure of interest rates. We study parameter uncertainty by comparing Bayesian inference with frequentist estimation techniques, and model uncertainty by combining forecasts from individual models. We incorporate macroeconomic information in yield curve models by extracting common factors from a large panel of macro series. Our results show that accounting for parameter uncertainty does not improve the forecast performance of individual models. The predictive accuracy of single models varies over time considerably and we demonstrate that mitigating model uncertainty by combining forecasts leads to substantial gains in predictability. Combining forecasts using a weighting method that is based on relative historical performance results in highly accurate forecasts. The gains in terms of forecast performance are substantial, especially for longer maturities, and are consistent over time. In addition, we find that adding macroeconomic factors generally is beneficial for improving out-of-sample forecasts.
Book Synopsis Modeling the Conditional Distribution of Interest Rates as a Regime-Switching Process by : Stephen Gray
Download or read book Modeling the Conditional Distribution of Interest Rates as a Regime-Switching Process written by Stephen Gray and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a generalized regime-switching (GRS) model of the short-term interest rate. The model allows the short rate to exhibit both mean reversion and conditional heteroskedasticity and nests the popular generalized autoregressive conditional heteroskedasticity (GARCH) and square root process specifications. Thus, the conditional variance process accommodates volatility clustering and dependence on the level of the interest rate. Switching between regimes is governed by a first-order Markov process with state-dependent transition probabilities. The GRS model is compared with various existing models of the short rate in terms of the statistical fit of short-term interest rate data and in terms of out-of-sample forecasting performance.
Book Synopsis Are Analysts Right? Macroeconomic Factors and Regime Switching in the Term Structure of Interest Rates by : Nina Boyarchenko
Download or read book Are Analysts Right? Macroeconomic Factors and Regime Switching in the Term Structure of Interest Rates written by Nina Boyarchenko and published by . This book was released on 2010 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The validity of analysts' beliefs that the dependence of bond prices on crude oil prices changes sign over time and that the overall economy performance is correlated with the slope of the yield curve is examined. These beliefs are mapped into the term structure of interest rates framework by allowing for regime switching in the term structure and by using crude oil prices and an overall economy performance index (CFNAI) as factors. Fitting is done using Gibbs sampling, which allows for fewer assumptions on the regime switching parameters than classical methods and, thus, provides a more flexible model. The predicted yields are calculated using the eigenfunction expansion method.
Book Synopsis PCA-Based Ex-Ante Forecasting of Swap Term Structures by : Oliver Blaskowitz
Download or read book PCA-Based Ex-Ante Forecasting of Swap Term Structures written by Oliver Blaskowitz and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we forecast the term structure of EURIBOR swap rates by means of rolling vector autoregressive (VAR) models. In advance, a principal component analysis (PCA) is adopted to reduce the dimensionality of the term structure. To statistically assess the forecasting performance for particular rates and the level, slope and curvature of the swap term structure, we rely on the Henrikkson-Merton statistic. Economic performance is investigated by means of cash flows implied by alternative trading strategies. Finally, a data-driven, adaptive model selection strategy to "predict the best forecasting model" out of a set of 100 alternative PCA/VAR implementations is shown to outperform forecasting schemes that rely on global homogeneity of the term structure.
Book Synopsis Financial Risk Management with Bayesian Estimation of GARCH Models by : David Ardia
Download or read book Financial Risk Management with Bayesian Estimation of GARCH Models written by David Ardia and published by Springer Science & Business Media. This book was released on 2008-05-08 with total page 206 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents in detail methodologies for the Bayesian estimation of sing- regime and regime-switching GARCH models. These models are widespread and essential tools in n ancial econometrics and have, until recently, mainly been estimated using the classical Maximum Likelihood technique. As this study aims to demonstrate, the Bayesian approach o ers an attractive alternative which enables small sample results, robust estimation, model discrimination and probabilistic statements on nonlinear functions of the model parameters. The author is indebted to numerous individuals for help in the preparation of this study. Primarily, I owe a great debt to Prof. Dr. Philippe J. Deschamps who inspired me to study Bayesian econometrics, suggested the subject, guided me under his supervision and encouraged my research. I would also like to thank Prof. Dr. Martin Wallmeier and my colleagues of the Department of Quantitative Economics, in particular Michael Beer, Roberto Cerratti and Gilles Kaltenrieder, for their useful comments and discussions. I am very indebted to my friends Carlos Ord as Criado, Julien A. Straubhaar, J er ^ ome Ph. A. Taillard and Mathieu Vuilleumier, for their support in the elds of economics, mathematics and statistics. Thanks also to my friend Kevin Barnes who helped with my English in this work. Finally, I am greatly indebted to my parents and grandparents for their support and encouragement while I was struggling with the writing of this thesis.
