A Multivariate Model of the Term Structure*

Langetieg, Terence C.

doi:10.1111/j.1540-6261.1980.tb03472.x

Cited by 143 publications

(78 citation statements)

References 41 publications

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“…They found that while the Vasicek model was severely mis-specified, there was quite some empirical support to the CIR model. This finding was also consistent with the market segmentation theory that there is a liquidity premium attached to the bonds with long maturities in additional to the risk premium (Fama, 1976;Langetieg, 1980). We also report the parameter estimates and their standard errors (in parentheses) for the Vasicek and CIR models.…”

Section: Case Studysupporting

confidence: 85%

Enhancing Estimation for Interest Rate Diffusion Models With Bond Prices

Zou

Chen

2017

Journal of Business & Economic Statistics

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We consider improving estimating parameters of diffusion processes for interest rates by incorporating information in bond prices. This is designed to improve the estimation of the drift parameters, which are known to be subject to large estimation errors. It is shown that having the bond prices together with the short rates leads to more efficient estimation of all parameters for the interest rate models. It enhances the estimation efficiency of the maximum likelihood estimation based on the interest rate dynamics alone. The combined estimation based on the bond prices and the interest rate dynamics can also provide inference to the risk premium parameter. Simulation experiments were conducted to confirm the theoretical properties of the estimators concerned. We analyze the overnight Fed fund rates together with the U.S. Treasury bond prices.JEL CLASSIFICATION: C50, C58.

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Section: Case Studysupporting

confidence: 85%

Enhancing Estimation for Interest Rate Diffusion Models With Bond Prices

Zou

Chen

2017

Journal of Business & Economic Statistics

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“…The Vasicek and CIR model share the feature that the state is an affine diffusion under both the risk-neutral and the data-generating probability measure. Vasicek (1977) only contains the one-factor version of the model, which was later extended to the multifactor case by Langetieg (1980). Cox et al (1985) already contains the multifactor case in Section 6.…”

mentioning

confidence: 99%

Affine Term Structure Models

Piazzesi

2010

Handbook of Financial Econometrics: Tools and Techniques

271

154

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“…But, these portfolio weights, very much akin to those in, say, Langetieg (1980), produce a certain return that cannot exceed the risk-free rate without arbitrage (and in turn lead to the bond pricing equation). In other words, the relevant partial derivatives on the right hand side of (4) are derived under the no-arbitrage restriction, and therefore BAB gov can only work by the coincidence that GATSM-implied yields are persistently lower (higher) than observed yields at the front (back) end of the term structure, or if model fitting errors are somehow a function of maturity.…”

Section: Gatsms and Under-specificationmentioning

confidence: 99%

Betting Against Beta (and Gamma) Using Government Bonds

Durham

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractPurportedly consistent with "risk parity" (RP) asset allocation, recent studies document compelling "low risk" trading strategies that exploit a persistently negative relation between Sharpe ratios (SRs) and maturity along the U.S. Treasury (UST) term structure. This paper extends this evidence on betting against beta with government bonds (BAB gov ) in four respects. First, out-of-sample tests suggest that excess returns may have waned somewhat recently and that the pattern seems most pronounced for USTs given data on ten other previously unexamined government bond markets. Second, BAB gov appears robust when hedged ex-ante against covariance with equities and thereby does not resemble selling volatility, but these results nonetheless belie a possible tension rather than consistency between leverage constraints and lowrisk investing: namely, that investors bid longer-dated UST prices higher (lower) under BAB (RP). Third, the fact that Gaussian affine term structure models of USTs also imply an inverted SR schedule suggests that investors cannot, in fact, realize abnormal returns if they are fully hedged to the underlying model factors, and BAB gov excess returns are indeed not robust to exante constraints on exposure to the yield curve's principal components. Fourth, some evidence suggests that previous BAB gov results reflect coskew preferences, alternative BAB gov strategies hedged to coskew risks ex-ante forgo substantial returns, and there is no indication that investors can earn excess returns betting against gamma. However, the sign of investors' coskew preferences in government bond markets remains ambiguous.

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A Multivariate Model of the Term Structure*

Cited by 143 publications

References 41 publications

Enhancing Estimation for Interest Rate Diffusion Models With Bond Prices

Enhancing Estimation for Interest Rate Diffusion Models With Bond Prices

Affine Term Structure Models

Betting Against Beta (and Gamma) Using Government Bonds

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