A Multivariate Model of the Term Structure

Langetieg, Terence C.

doi:10.2307/2327182

Cited by 68 publications

(42 citation statements)

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“…In this paper, we have been concerned with the estimation of a two-factor subclass of the general Gaussian term structure model by Langetieg (1980) considered recently by Babbs and Nowman (1997). We have developed a procedure for the Gaussian estimation of its parameters, based on Gaussian estimation methods developed by Bergstrom (1983Bergstrom ( , 1985Bergstrom ( , 1986Bergstrom ( , 1990, and extended these to handle unobserved state variables.…”

Section: Discussionmentioning

confidence: 99%

“…The model we consider is a subclass of Langetieg (1980) and was considered by Babbs and Nowman (1997) in a general setting. The two-factor constant parameter case assumes that a possible description of the instantaneous interest rate, r, is given by…”

Section: A Two-factor Interest Rate Modelmentioning

confidence: 99%

“…In this paper, we extend the general Gaussian estimation methods to estimate a two-factor Gaussian term structure model with unobserved state variables. The general linear Gaussian model of the term structure dates back to Langetieg (1980) and, in this paper, a particular subclass of this model, considered recently by Babbs and Nowman (1997), is estimated. The subclass is distinguished by the characteristic that the drift of each state variable depends on no other state variable; Babbs and Nowman (1997) showed that this subclass belongs to the Generalized Vasicek family of models discussed by Babbs (1993).…”

Section: Introductionmentioning

confidence: 99%

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Gaussian Estimation of a Two‐factor Continuous Time Model of the Short‐term Interest Rate

Bergstrom

Nowman

1999

Economic Notes

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This paper considers the econometric estimation of a two-factor model of the short-term interest rate. We develop a procedure for the time series estimation of its parameters, based on recently developed Gaussian estimation methods which are extended to handle unobservable state variables. The main methodological contribution is the derivation of an exact discrete model and the exact Gaussian likelihood function in terms of the discrete observations and structural parameters of the two-factor model. The model is estimated on one month euro-currency interest rate data for seven currencies ± the Belgium franc, Canadian dollar, Dutch guilder, French franc, German mark, Italian lira, and the US dollar over the period February 1981 to December 1995 ± and our results indicate that the method works well in practice. The empirical estimates reported in this study can be used to compare estimates from the calibration of an arbitrage-free analogue of the model to market prices of interest rate caps and swaptions for use in the ®nancial markets.(J.E.L.: C13, E43).

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Section: Discussionmentioning

confidence: 99%

Section: A Two-factor Interest Rate Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Gaussian Estimation of a Two‐factor Continuous Time Model of the Short‐term Interest Rate

Bergstrom

Nowman

1999

Economic Notes

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“…From a modified version of the base model of Langetieg (1980), we assume that the instantaneous nominal default-free interest rate, r t , equals the sum of two latent factors, x 1,t and x 2,t :…”

Section: The Modelmentioning

confidence: 99%

Estimating the Term Structure of Credit Spreads on Euro‐denominated Corporate Bonds

Terazzan

2006

Economic Notes

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In this paper, we estimate the term structure of credit spreads on Eurodenominated corporate bonds with a modified version of the Duffee (1999) intensity-based model. The empirical analysis considers monthly observations for a sample of investment-grade euro-denominated corporate bonds analysed for rating classes. The model is estimated with a maximum likelihood -Kalman filter approach over different sample periods ranging from January 1999 to August 2006. The estimation results, in general, support the application of the theoretical model to the euro-denominated bond market and exhibit some interesting characteristics of this relatively recent market.

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“…Schwartz (1980, 1981) utilize a twofactor model ("short" and "long" term interest rates). Langetieg (1980) derives a vector of duration measures using multiple stochastic factors, but leaves the factors undefined.…”

Section: Stochastic Process Modelsmentioning

confidence: 99%

An immunization strategy for futures contracts on government securities

Chambers

1984

Journal of Futures Markets

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inancial futures markets provide vehicles for the transfer of interest rate risks.F It is important from a public policy perspective, and presumably from the perspective of most market participants, that the interest rate risks are reasonabIy understood and potentially controllable. Substantial effort has been devoted towards the development of hedging and immunization strategies to reduce and to control interest rate risks.The purpose of this study is to extend a previously formulated immunization strategy for bonds into an immunization strategy for futures contracts on U.S. Government securities. The bond immunization strategy appears rather successful in reducing and virtually eliminating interest rate risks for US. Treasury notes. This study demonstrates that the immunization strategy is tractable in the case of futures contracts but does not perform an empirical test.

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A Multivariate Model of the Term Structure

Cited by 68 publications

References 0 publications

Gaussian Estimation of a Two‐factor Continuous Time Model of the Short‐term Interest Rate

Gaussian Estimation of a Two‐factor Continuous Time Model of the Short‐term Interest Rate

Estimating the Term Structure of Credit Spreads on Euro‐denominated Corporate Bonds

An immunization strategy for futures contracts on government securities

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