An application of generalized Vasicek term structure models to the UK gilt-edged market: a Kalman filtering analysis

Babbs, Simon H.; Nowman, K. Ben

doi:10.1080/096031098332673

Cited by 13 publications

(6 citation statements)

References 11 publications

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“…The correlation coefficient is −87 percent and highly significant. The large negative correlation is in line with Babbs and Nowman (1997b) for the UK Gilt-Edge market. The estimate of the long-run average rate is 8.34 percent for the one factor model and 9.25 percent for the two factor model and plausible.…”

Section: United Kingdomsupporting

confidence: 73%

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Babbs

Nowman

1998

Asia-Pacific Financial Markets

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In this paper we apply the Kalman filter to a state formulation of a multi-factor term structure model allowing for measurement errors in the data. We estimate one and two factor models using panel data allowing the cross sectional and dynamic implications of the yield curve to be taken into account. The panel data approach has the advantage of using all the information in the yield curve across and over time compared to a time series approach only. The models are estimated on data for the Belgian franc, British pound, Danish krone, Dutch guilder, French franc, German mark, Japanese yen, Italian lira and Swiss franc. Our empirical results indicate that the two factor model represents a good description of the yield curves in these markets.

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Section: United Kingdomsupporting

confidence: 73%

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Babbs

Nowman

1998

Asia-Pacific Financial Markets

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“…The result is standard in the literature, e.g. see Babbs and Nowman (1998), but I also provide a derivation in appendix E.2.2. Hence, the state equation for any CAB-GATSM is always a …rst-order vector autoregression for the state variables, i.e.…”

Section: Cab-gatsm State Space Representationmentioning

confidence: 88%

A Tractable Framework for Zero-Lower-Bound Gaussian Term Structure Models

Krippner

2013

SSRN Journal

144

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When nominal interest rates are near their zero lower bound (ZLB), as in many developed economies at the time of writing, it is theoretically untenable to apply the popular class of Gaussian affine term structure models (GATSMs) given their inherent material probabilities of negative interest rates. Hence, I propose a tractable modification for GATSMs that enforces the ZLB, and which approximates the fully arbitrage-free but much less tractable framework proposed in Black (1995). I apply my framework to United States yield curve data, with robust estimation via the iterated extended Kalman filter, and first show that the two-factor results are very similar to those from a comparable Black model. I then estimate two-and three-factor models with longer-maturity data sets to illustrate that my ZLB framework can readily be applied in circumstances would computationally burdensome or infeasible within the Black framework.

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“…They found that the model fits the US curve and that the measurement errors of the two factor model indicated that the model performs as well as the three factor model. Some early works by Babbs and Nowman (1998a) on the UK Gilt market found that this two factor model performed well also in this market (see also Babbs and Nowman (1998b), Date and Wang (2009)). In this paper we apply the Generalized Vasicek model to the UK and Euro markets.…”

Section: Introductionmentioning

confidence: 90%

Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models

Nowman

2010

International Review of Financial Analysis

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An application of generalized Vasicek term structure models to the UK gilt-edged market: a Kalman filtering analysis

Cited by 13 publications

References 11 publications

Untitled

Untitled

A Tractable Framework for Zero-Lower-Bound Gaussian Term Structure Models

Modelling the UK and Euro yield curves using the Generalized Vasicek model: Empirical results from panel data for one and two factor models

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