Jurnal of Finance - Linear-Rational Term Structure Models (DAMIR FILIPOVIĆ,MARTIN LARSSON,ANDERS B. TROLLE )
ABSTRACT
We introduce the class of linear-rational term
structure models in which the state price density is modeled such that bond
prices become linear-rational functions of the factors. This class is highly
tractable with several distinct advantages: (i) ensures nonnegative interest
rates, (ii) easily accommodates unspanned factors affecting volatility and risk
premiums, and (iii) admits semi-analytical solutions to swaptions. A
parsimonious model specification within the linear-rational class has a very
good fit to both interest rate swaps and swaptions since 1997 and captures many
features of term structure, volatility, and risk premium dynamics—including
when interest rates are close to the zero lower bound.
Format Available : Full text: HTML | PDF
© 2016 the American Finance Association
0 komentar:
Posting Komentar