scholarly journals Immunization under stochastic models of the term structure

1978 ◽  
Vol 105 (2) ◽  
pp. 177-187 ◽  
Author(s):  
P. P. Boyle
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Stochastic Models ◽  
Random Variables ◽  
Equilibrium Prices ◽  
Capital Assets ◽  
Stochastic Framework ◽  
The Relationship

1.1. The purpose of this paper is to survey some new results concerning the term structure of interest rates and discuss actuarial applications. The term structure of interest rates exhibits the relationship among the yields on default free debt instruments of different maturities. Although there is a considerable volume of literature dealing with the determinants of the term structure the analysis has until recently been presented for the most part in a deterministic (i.e. non-stochastic) framework. This constrasts with the treatment of capital assets where equilibrium prices have been obtained under the assumption that returns on these assets are random variables.

scholarly journals GENERAL ANALYSIS OF LONG-TERM INTEREST RATES

2020 ◽  
Vol 23 (01) ◽  
pp. 2050002
Author(s):  
FRANCESCA BIAGINI ◽  
ALESSANDRO GNOATTO ◽  
MAXIMILIAN HÄRTEL
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Applied Mathematics ◽  
Mathematical Finance ◽  
Rational Model ◽  
No Arbitrage ◽  
Working Paper ◽  
Social Discounting ◽  
The Relationship

We introduce here the idea of a long-term swap rate, characterized as the fair rate of an overnight indexed swap (OIS) with infinitely many exchanges. Furthermore, we analyze the relationship between the long-term swap rate, the long-term yield, (F. Biagini, A. Gnoatto & M. Härtel (2018) Affine HJM Framework on [Formula: see text] and long-term yield, Applied Mathematics and Optimization 77 (3), 405–441, F. Biagini & M. Härtel (2014) Behavior of long-term yields in a lévy term structure, International Journal of Theoretical and Applied Finance 17 (3), 1–24, N. El Karoui, A. Frachot & H. Geman (1997) A note on the behavior of long zero coupon rates in a no arbitrage framework. Working Paper. Available at Researchgate: https://www.researchgate.net/publication/5066730) , and the long-term simple rate (D. C. Brody & L. P. Hughston (2016) Social discounting and the long rate of interest, Mathematical Finance 28 (1), 306–334) as long-term discounting rate. Finally, we investigate the existence of these long-term rates in two-term structure methodologies, the Flesaker–Hughston model and the linear-rational model. A numerical example illustrates how our results can be used to estimate the nonoptional component of a CoCo bond.

scholarly journals The Effect Of Government Debt Quantity Shocks On The Term Structure Of Interest Rates

2011 ◽  
Vol 5 (1) ◽  
Author(s):  
Riza Emekter ◽  
John Geppert ◽  
Benjamas Jirasakuldech
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Method Of Moments ◽  
Public Debt ◽  
Generalized Method Of Moments ◽  
Government Debt ◽  
Font Size ◽  
Yield Model ◽  
The Relationship

<p class="MsoBodyTextIndent" style="text-align: justify; line-height: normal; margin: 0in 35.2pt 0pt 35pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">In this paper, the effect of the maturity composition of marketable public debt on the term structure of interest rate is explored.<span style="mso-spacerun: yes;">&nbsp; </span>The research has shown that this effect is relatively small.<span style="mso-spacerun: yes;">&nbsp; </span>Unlike previous research, the yield changes around the quantity shocks are analyzed in relation to these shocks.<span style="mso-spacerun: yes;">&nbsp; </span>Our results show that yields respond significantly to the auctioning of new bonds.<span style="mso-spacerun: yes;">&nbsp; </span>The announcements of auctions do not have any impact on yields.<span style="mso-spacerun: yes;">&nbsp; </span>A two-factor affine yield model is used to explain the relationship between quantity shocks in public debt and term structure of interest rates.<span style="mso-spacerun: yes;">&nbsp; </span>The parameters are estimated using Generalized Method of Moments.<span style="mso-spacerun: yes;">&nbsp; </span>While the relationship between quantities and yields is weak, yields can be related to the event of the auctioning process.</span></span></span></p>

scholarly journals Title: analysis of term structure of interest rates in Latin America countries from 2006 to 2014

2015 ◽  
Vol 13 (4) ◽  
pp. 650
Author(s):  
Felipe Stona ◽  
Jean Amann ◽  
Maurício Delago Morais ◽  
Divanildo Triches ◽  
Igor Clemente Morais
Keyword(s):  
Latin America ◽  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Principal Component ◽  
Vector Model ◽  
Yield Curves ◽  
Macroeconomic Factors ◽  
The Relationship ◽  
Latin America Countries

This article aims to investigate the relationship between the term structure of interest rates and macroeconomic factors in selected countries of Latin America, such as Brazil, Chile and Mexico, between 2006 and 2014, on an autoregressive vector model. Specifically, we perform estimations of Nelson-Siegel, Diabold-Li and principal component analysis to test how the change of macroeconomic factors, e.g. inflation, production and unemployment levels affect the yield curves. For Brazil and Mexico, GDP and inflation variables are relevant to change the yield curves, with the former shifting more the level, and the latter with greater influence on the slope. For Chile, inflation had the greatest impact on the level and, specifically for Mexico, the unemployment variable also changed the slope of the yield curve.

scholarly journals Testing the Performance of Cubic Splines and Nelson-Siegel Model for Estimating the Zero-coupon Yield Curve

2016 ◽  
Vol 62 (2) ◽  
pp. 42-50 ◽  
Author(s):  
Eva Lorenčič
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Financial Market ◽  
Real World ◽  
Yield Curve ◽  
Cubic Splines ◽  
Medium Term ◽  
Government Bonds ◽  
The Real ◽  
The Relationship

Abstract Understanding the relationship between interest rates and term to maturity of securities is a prerequisite for developing financial theory and evaluating whether it holds up in the real world; therefore, such an understanding lies at the heart of monetary and financial economics. Accurately fitting the term structure of interest rates is the backbone of a smoothly functioning financial market, which is why the testing of various models for estimating and predicting the term structure of interest rates is an important topic in finance that has received considerable attention for many decades. In this paper, we empirically contrast the performance of cubic splines and the Nelson-Siegel model by estimating the zero-coupon yields of Austrian government bonds. The main conclusion that can be drawn from the results of the calculations is that the Nelson-Siegel model outperforms cubic splines at the short end of the yield curve (up to 2 years), whereas for medium-term maturities (2 to 10 years) the fitting performance of both models is comparable.

The Term Structure of Interest Rates and the Evaluation of Forestry Investments: A Note

1988 ◽  
Vol 12 (4) ◽  
pp. 256-258
Author(s):  
F. Christian Zinkhan
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Discount Rate ◽  
Net Present Value ◽  
Present Value ◽  
Term Structures ◽  
Forestry Investments ◽  
The Relationship

Abstract The forestry literature generally assumes that the appropriate discount rate to be used in the estimation of a given investment's net present value is the same over its lifetime. However, the values of many alternative investments such as stocks and bonds often reflect term structures that are not flat. That is, the relationship between the number of years to maturity of an investment and that investment's required rate of return is often a significant consideration. This note suggests a procedure for incorporating a consideration of the term structure of interest rates into the determination of a discount rate specific to each annual net cash flow associated with a given long-term forestry investment. Using an actual 10-year case analysis, it was found that the valuation of a timberland tract varied by approximately 11%, depending upon whether or not the term structure of interest rates was recognized. South. J. Appl. For. 12(4):256-258.

scholarly journals REGIME CHANGES IN MONETARY POLICY AND THE EXPECTATION HYPOTHESIS OF THE TERM STRUCTURE IN TURKEY

2012 ◽  
Vol 13 (2) ◽  
pp. 261-274
Author(s):  
K. Azim Özdemir ◽  
Özgür Özel
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Term Structure ◽  
Inflation Targeting ◽  
Stock Exchange ◽  
Structural Instability ◽  
Data Set ◽  
Expectation Hypothesis ◽  
The Government ◽  
The Relationship

In this study we test the long-run validity of the Expectation Hypothesis of the Term Structure (EHTS) in Turkey by using monthly interest rate series from 2003m1 to 2010m1. The data set is obtained from the bonds and bills market for the government securities in the Istanbul Stock Exchange (ISE). Several results arise from our empirical analysis. First, we find strong evidence that there are stationary combinations of the long and short rates during the sample period. Secondly, when we restrict the cointegrating vectors to be the spread vectors between short and long rates we are not able to reject the restriction if the dynamic specifications of the systems include 2 lags of the interest rates. This result, however, is not robust to the lag length of 4 and 6 if the systems include interest rates with maturities longer than 6 months. Finally, the formal stability test results suggest that the regime change from the implicit to the full-fledged inflation targeting (IT) has no significant effect on the relationship among the interest rates on the short end of the term structure while the structural instability found in the relationship between the short rates and the long rates with maturity longer than 6 months might indicate the effect of the regime shift on this relationship. These results are in line with the conclusions of the literature that argues the EHTS to hold for the short end of the term structure when the focus of the monetary policy is to stabilize the short-term interest rates.

scholarly journals News Shocks and the Slope of the Term Structure of Interest Rates

2013 ◽  
Vol 103 (6) ◽  
pp. 2612-2632 ◽  
Author(s):  
André Kurmann ◽  
Christopher Otrok
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Statistical Approach ◽  
Structural Models ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Factor Productivity ◽  
News Shocks ◽  
Macroeconomic Fundamentals ◽  
The Relationship

We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates. We find that one shock can explain the majority of unpredictable movements in the slope. Impulse response functions lead us to interpret this shock as news about future total factor productivity (TFP). By showing that “slope shocks” are essentially “TFP news shocks” we provide a new explanation for the relationship between the slope and macroeconomic fundamentals. Our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance. (JEL E23, E43, E52, G12, G14)

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