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Yield Forecasts And Stochastic Volatility In Affine Models With Macro Factors
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Book Synopsis Yield Forecasts and Stochastic Volatility in Affine Models with Macro Factors by : Hwagyun Kim
Download or read book Yield Forecasts and Stochastic Volatility in Affine Models with Macro Factors written by Hwagyun Kim and published by . This book was released on 2011 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Affine term structure models (ATSMs) are known to have a trade-off in predicting future Treasury yields and fitting the time-varying volatility of interest rates. This paper empirically studies the role of macroeconomic variables in simultaneously achieving these two goals under affine models. To this end, we incorporate a liquidity demand theory via a measure of the velocity of money into affine models. We find that this considerably reduces the statistical tension between matching the first and second moments of interest rates. In terms of forecasting yields, the models with the velocity of money outperform among the ATSMs examined, including those with inflation and real activity. Our result is robust across maturities, forecasting horizons, risk price specifications, and the number of latent factors.
Book Synopsis Yield Curve Modeling and Forecasting by : Francis X. Diebold
Download or read book Yield Curve Modeling and Forecasting written by Francis X. Diebold and published by Princeton University Press. This book was released on 2013-01-15 with total page 223 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed. Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Book Synopsis Affine Term Structure Models, Volatility and the Segmentation Hypothesis by : Kris Jacobs
Download or read book Affine Term Structure Models, Volatility and the Segmentation Hypothesis written by Kris Jacobs and published by . This book was released on 2007 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several papers have questioned the ability of multifactor affine models to extract interest rate volatility from the cross-section of bond prices. These studies find that the conditional volatility implied by these models is very poorly or even negatively correlated with model-free volatility. We provide an in-depth investigation of the conditional volatility of monthly Treasury yields implied by three-factor affine models. We investigate different specifications of the price of risk and different specifications of volatility. For long maturities, the correlation between model-implied and EGARCH volatility estimates is approximately 82% for yield differences and 92% for yield levels. For short-maturity yields, the correlation varies between 58% and 71% for yield differences and between 62% and 76% for yield levels. The differences at short maturities are largely accounted for by the number of factors affecting volatility. A model-free measure of the level factor is highly correlated with EGARCH volatility as well as model-implied volatilities, which explains most of our findings. We conclude that multifactor affine models are much better at extracting time-series volatility from the cross-section of yields than argued in the literature. However, existing models have difficulty capturing volatility dynamics at the short end of the maturity spectrum, perhaps indicating some form of segmentation between long-maturity and short-maturity bonds. These results are robust to the choice of sample period, interpolation method and estimation method.
Book Synopsis Macro Factors and the Yield Curve by : Peyron Law
Download or read book Macro Factors and the Yield Curve written by Peyron Law and published by . This book was released on 2005 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Challenges in Macro-finance Modeling by : Don H. Kim
Download or read book Challenges in Macro-finance Modeling written by Don H. Kim and published by . This book was released on 2007 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses various challenges in the specification and implementation of "macro-finance" models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models ("internal basis models") and models which have observed macroeconomic variables as state variables ("external basis models"), and examine the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro variables and their potentially adverse effect on the specification of external basis models. I also discuss the challenge of addressing features like structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro-finance models are also discussed in detail.
Book Synopsis Modelling the Term Structure with Trends in Yields and Cycles in Excess Returns by : Carlo A. Favero
Download or read book Modelling the Term Structure with Trends in Yields and Cycles in Excess Returns written by Carlo A. Favero and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes an Affine Macro Term Structure model in which yields are drifting, sharing a common stochastic trend driven by the drift in short-term (monetary policy) rates and excess returns are stationary as the compensation for risk is driven by the cycles in yields. We apply the approach to US data and compare the empirical results from the new specification with those obtained from standard Affine Term Structure models. The cycle-trend decomposition-based Affine Term Structure model produces much better forecasts of the dynamics of yields and, consequently, different and stationary dynamics for the term premia.
Book Synopsis Analysis of Multi-Factor Affine Yield Curve Models by : Siddhartha Chib
Download or read book Analysis of Multi-Factor Affine Yield Curve Models written by Siddhartha Chib and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In finance and economics, there is a great deal of work on the theoretical modeling and statistical estimation of the yield curve (defined as the relation between $- frac{1}{ tau } log p_{t}( tau )$ and $ tau$, where $p_{t}( tau )$ is the time $t$ price of the zero-coupon bond with payoff 1 at maturity date $t tau$). Of much current interest are models in which the bond prices are derived from a stochastic discount factor (SDF) approach that enforces an important no-arbitrage condition. The log of the SDF is assumed to be an affine function of latent and observed factors, where these factors are assumed to follow a stationary Markov process. In this paper we revisit the question of how such multi-factor affine models of the yield curve should be fit. Our discussion, like that of cite% {AngDongPiazzesi07}, is from the Bayesian MCMC viewpoint, but our implementation of this viewpoint is different and novel. Key aspects of the inferential framework include (i) a prior on the parameters of the model that is motivated by economic considerations, in particular, those involving the slope of the implied yield curve; (ii) posterior simulation of the parameters in ways to improve the efficiency of the MCMC output, for example, through sampling of the parameters marginalized over the factors, and through tailoring of the proposal densities in the Metropolis-Hastings steps using information about the mode and curvature of the current target based on the output of a simulating annealing algorithm; and (iii) measures to mitigate numerical instabilities in the fitting through reparameterizations and square root filtering recursions. We apply the techniques to explain the monthly yields on nine US Treasuries (with maturities ranging from 1 to 120 months) over the period January 1986 to December 2005. The model contains three factors, one latent and two observed. We also consider the problem of predicting the nine yields for each month of 2006. We show that the (multi-step ahead) prediction regions properly bracket the actual yields in those months, thus highlighting the practical value of the fitted model.
Author :Antoine Petrus Cornelius van der Ploeg Publisher :Rozenberg Publishers ISBN 13 :9051705778 Total Pages :358 pages Book Rating :4.0/5 (517 download)
Book Synopsis Stochastic volatility and the pricing of financial derivatives by : Antoine Petrus Cornelius van der Ploeg
Download or read book Stochastic volatility and the pricing of financial derivatives written by Antoine Petrus Cornelius van der Ploeg and published by Rozenberg Publishers. This book was released on 2006 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis "True" Stochastic Volatility and a Generalized Class of Affine Models by : Pierre Collin Dufresne
Download or read book "True" Stochastic Volatility and a Generalized Class of Affine Models written by Pierre Collin Dufresne and published by . This book was released on 2000 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Modeling Stochastic Volatility with Application to Stock Returns by : Mr.Noureddine Krichene
Download or read book Modeling Stochastic Volatility with Application to Stock Returns written by Mr.Noureddine Krichene and published by International Monetary Fund. This book was released on 2003-06-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: A stochastic volatility model where volatility was driven solely by a latent variable called news was estimated for three stock indices. A Markov chain Monte Carlo algorithm was used for estimating Bayesian parameters and filtering volatilities. Volatility persistence being close to one was consistent with both volatility clustering and mean reversion. Filtering showed highly volatile markets, reflecting frequent pertinent news. Diagnostics showed no model failure, although specification improvements were always possible. The model corroborated stylized findings in volatility modeling and has potential value for market participants in asset pricing and risk management, as well as for policymakers in the design of macroeconomic policies conducive to less volatile financial markets.
Book Synopsis Handbook of Fixed-Income Securities by : Pietro Veronesi
Download or read book Handbook of Fixed-Income Securities written by Pietro Veronesi and published by John Wiley & Sons. This book was released on 2016-04-04 with total page 630 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive guide to the current theories and methodologies intrinsic to fixed-income securities Written by well-known experts from a cross section of academia and finance, Handbook of Fixed-Income Securities features a compilation of the most up-to-date fixed-income securities techniques and methods. The book presents crucial topics of fixed income in an accessible and logical format. Emphasizing empirical research and real-life applications, the book explores a wide range of topics from the risk and return of fixed-income investments, to the impact of monetary policy on interest rates, to the post-crisis new regulatory landscape. Well organized to cover critical topics in fixed income, Handbook of Fixed-Income Securities is divided into eight main sections that feature: • An introduction to fixed-income markets such as Treasury bonds, inflation-protected securities, money markets, mortgage-backed securities, and the basic analytics that characterize them • Monetary policy and fixed-income markets, which highlight the recent empirical evidence on the central banks’ influence on interest rates, including the recent quantitative easing experiments • Interest rate risk measurement and management with a special focus on the most recent techniques and methodologies for asset-liability management under regulatory constraints • The predictability of bond returns with a critical discussion of the empirical evidence on time-varying bond risk premia, both in the United States and abroad, and their sources, such as liquidity and volatility • Advanced topics, with a focus on the most recent research on term structure models and econometrics, the dynamics of bond illiquidity, and the puzzling dynamics of stocks and bonds • Derivatives markets, including a detailed discussion of the new regulatory landscape after the financial crisis and an introduction to no-arbitrage derivatives pricing • Further topics on derivatives pricing that cover modern valuation techniques, such as Monte Carlo simulations, volatility surfaces, and no-arbitrage pricing with regulatory constraints • Corporate and sovereign bonds with a detailed discussion of the tools required to analyze default risk, the relevant empirical evidence, and a special focus on the recent sovereign crises A complete reference for practitioners in the fields of finance, business, applied statistics, econometrics, and engineering, Handbook of Fixed-Income Securities is also a useful supplementary textbook for graduate and MBA-level courses on fixed-income securities, risk management, volatility, bonds, derivatives, and financial markets. Pietro Veronesi, PhD, is Roman Family Professor of Finance at the University of Chicago Booth School of Business, where he teaches Masters and PhD-level courses in fixed income, risk management, and asset pricing. Published in leading academic journals and honored by numerous awards, his research focuses on stock and bond valuation, return predictability, bubbles and crashes, and the relation between asset prices and government policies.
Book Synopsis Geometric Information of Yield Curve, Unspanned Stochastic Volatility, and Affine Heath-Jarrow-Morton Models by : Qingbin Wang
Download or read book Geometric Information of Yield Curve, Unspanned Stochastic Volatility, and Affine Heath-Jarrow-Morton Models written by Qingbin Wang and published by . This book was released on 2014 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Yield Curve and Financial Risk Premia by : Felix Geiger
Download or read book The Yield Curve and Financial Risk Premia written by Felix Geiger and published by Springer Science & Business Media. This book was released on 2011-08-17 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt: The determinants of yield curve dynamics have been thoroughly discussed in finance models. However, little can be said about the macroeconomic factors behind the movements of short- and long-term interest rates as well as the risk compensation demanded by financial investors. By taking on a macro-finance perspective, the book’s approach explicitly acknowledges the close feedback between monetary policy, the macroeconomy and financial conditions. Both theoretical and empirical models are applied in order to get a profound understanding of the interlinkages between economic activity, the conduct of monetary policy and the underlying macroeconomic factors of bond price movements. Moreover, the book identifies a broad risk-taking channel of monetary transmission which allows a reassessment of the role of financial constraints; it enables policy makers to develop new guidelines for monetary policy and for financial supervision of how to cope with evolving financial imbalances.
Book Synopsis A Maximal Stochastic Volatility Model for Commodity Prices by : Walker Keener Hughen
Download or read book A Maximal Stochastic Volatility Model for Commodity Prices written by Walker Keener Hughen and published by . This book was released on 2007 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Complex Systems in Finance and Econometrics by : Robert A. Meyers
Download or read book Complex Systems in Finance and Econometrics written by Robert A. Meyers and published by Springer Science & Business Media. This book was released on 2010-11-03 with total page 919 pages. Available in PDF, EPUB and Kindle. Book excerpt: Finance, Econometrics and System Dynamics presents an overview of the concepts and tools for analyzing complex systems in a wide range of fields. The text integrates complexity with deterministic equations and concepts from real world examples, and appeals to a broad audience.
Book Synopsis Macro Factors in the Term Structure of Credit Spreads by : Jeffery D. Amato
Download or read book Macro Factors in the Term Structure of Credit Spreads written by Jeffery D. Amato and published by . This book was released on 2006 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and B rated corporate bonds in a doubly-stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables -- indicators of real activity, inflation and financial conditions -- as well as latent factors, as drivers of term structure dynamics. Our results point to three key roles played by macro factors in the term structure of spreads: they have a significant impact on the level, and particularly the slope, of the curves; they are largely responsible for variation in the prices of systematic risk; and speculative grade spreads exhibit greater sensitivity to macro shocks than high grade spreads. In addition to estimating risk-neutral default intensities, we provide estimates of physical default intensities using data on Moody's KMV EDFs as a forward--looking proxy for default risk. We find that the real and financial activity indicators, along with filtered estimates of the latent factors from our term structure model, explain a large portion of the variation in EDFs across time. Furthermore, measures of the price of default event risk implied by estimates of physical and risk-neutral intensities indicate that compensation for default event risk is countercyclical, varies widely across the cycle, and is higher on average and more variable for higher-rated bonds.
Book Synopsis Handbook of Economic Forecasting by : Graham Elliott
Download or read book Handbook of Economic Forecasting written by Graham Elliott and published by Elsevier. This book was released on 2013-08-23 with total page 667 pages. Available in PDF, EPUB and Kindle. Book excerpt: The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. - Focuses on innovation in economic forecasting via industry applications - Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications - Makes details about economic forecasting accessible to scholars in fields outside economics
