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Bond Pricing when the Short-Term Interest Rate Follows a Threshold Process
[Zeitschriftenartikel]
Abstract 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 ... mehr
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.... weniger
Klassifikation
Wirtschaftsstatistik, Ökonometrie, Wirtschaftsinformatik
Finanzwirtschaft, Rechnungswesen
Methode
Theorieanwendung
Freie Schlagwörter
Bond pricing; Term structure of interest rates; Threshold models
Sprache Dokument
Englisch
Publikationsjahr
2008
Seitenangabe
S. 811-822
Zeitschriftentitel
Quantitative Finance, 8 (2008) 8
DOI
https://doi.org/10.1080/14697680701691451
Status
Postprint; begutachtet (peer reviewed)
Lizenz
PEER Licence Agreement (applicable only to documents from PEER project)