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Beta Regimes for the Yield Curve


Audrino, Francesco; Giorgi, Enrico De (2005). Beta Regimes for the Yield Curve. Working paper series / Institute for Empirical Research in Economics No. 244, University of Zurich.

Abstract

We propose an a±ne term structure model which accommodates non-linearities in the drift andnvolatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formulanfor the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatilitynand correlation across yields.

Abstract

We propose an a±ne term structure model which accommodates non-linearities in the drift andnvolatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formulanfor the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatilitynand correlation across yields.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2005
Deposited On:29 Nov 2011 22:32
Last Modified:21 Nov 2017 15:36
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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