Feldhütter, P (2015) Can affine models match the moments in bond yields? Quarterly Journal of Finance, 6 (2). ISSN 2010-1392
Abstract
This paper examines the ability of three-factor affine term structure models with essentially, extended, and semi-affine risk premium specifications to capture the dynamics of bond excess returns, yield volatility and higher order moments in yields. Extended affine models can best capture the time-variation in excess returns and yield volatility simultaneous. However, none of the three-factor models can fully match bond return predictability and yield volatility jointly. Extended affine models are more restricted in the ability to price bonds because of necessary parameter restrictions — the so-called Feller condition — and essentially affine and semi-affine models are therefore better suited for pricing purposes.
More Details
Item Type: | Article |
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Subject Areas: | Finance |
Additional Information: |
© 2016 World Scientific Publishing Co Pte Ltd |
Date Deposited: | 17 Nov 2016 13:15 |
Subjects: |
Financial risk Risk |
Last Modified: | 20 May 2024 00:44 |
URI: | https://lbsresearch.london.edu/id/eprint/606 |