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%T Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process %A Lemke, Wolfgang %A Archontakis, Theofanis %J Quantitative Finance %N 8 %P 811-822 %V 8 %D 2008 %K Bond pricing; Term structure of interest rates; Threshold models %= 2011-03-15T15:12:00Z %~ http://www.peerproject.eu/ %> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-221143 %X This paper derives analytical solutions for arbitrage-free bond yields when the short-term interest rate follows an autoregressive process with the intercept switching endogenously. This process from the SETAR family is especially suited to capture the near-unit-root behavior typically observed in the evolution of short-term interest rates. The derived yield functions, mapping the one-month rate into n-period yields, exhibit a convex/concave shape to the left and the right of the threshold value, respectively; a pattern which is also found in US bond yield data. The longer the time to maturity, the more distinct the nonlinearity of the yield function becomes. %C GBR %G en %9 journal article %W GESIS - http://www.gesis.org %~ SSOAR - http://www.ssoar.info