Interest Rate Term Structure Decomposition: An Axiomatic Structural Approach

Barnard, Brian

doi:10.2139/ssrn.2847737

Cited by 4 publications

(8 citation statements)

References 10 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…forward rates. The initial solution of equation 8 of Barnard (2019) would also function in this case. Here, issue value is predominantly derived from discounting issue coupons against issue discount factors ( ), not portfolio discount factors ( ), and the optimization primarily optimizes issue discount factors, not portfolio discount factors per se.…”

Section: The Theoretical Model Of Term Structure Decomposition At Thementioning

confidence: 99%

“…Here, issue value is predominantly derived from discounting issue coupons against issue discount factors ( ), not portfolio discount factors ( ), and the optimization primarily optimizes issue discount factors, not portfolio discount factors per se. Barnard (2019) discusses term structure decomposition as as optimization problem, and it is also further covered subsequently.…”

Section: The Theoretical Model Of Term Structure Decomposition At Thementioning

confidence: 99%

“…In order to introduce structure smoothness to equation set 2, the axiomatic structural approaches of Barnard (2019) may be considered. Barnard (2019) notes that the premise that the resultant portfolio term structure optimizes goodness of fit against structure smoothness, may already stipulate sufficient information to decompose a term structure, without necessarily stipulating a set of basis functions or splines, as conventional models do. Rather, it may simply be stated as a general optimization problem, by including constraints to guide the structure or smoothness thereof (Boyd and Vandenberghe, 2004).…”

Section: Axiomatic Structural Approachesmentioning

confidence: 99%

“…introduces and reviews term structure decomposition, its purpose and objective, the applicable models used to decompose term structures, and offers a brief comparison of these -their performance, strengths and weaknesses. Barnard (2019) also introduces an axiomatic structural approach as term structure decomposition method. In addition, the premises of term structure decomposition at the instrument level are also introduced.…”

Section: Introductionmentioning

confidence: 99%

“…Next, the theoretical model thereof is stated. Barnard (2019) notes that instrument-level term structure decomposition implies that a term structure is decomposed for each issue or instrument. Furthermore, hypothetically, the portfolio term structure is not directly decomposed, but derived from the issue term structures instead.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Interest Rate Term Structure Decomposition at the Instrument Level

Barnard¹

2019

AEF

Self Cite

View full text Add to dashboard Cite

The paper examines term structure decomposition at the instrument level – decomposing term structures for issues as well as the portfolio. Three different implementations are stipulated: axiomatic structural approaches, a sequential approach, and a base structure approach. The three different implementations are evaluated against a portfolio of risk-free government bonds. The goodness-of-fit and smoothness properties of instrument-level term structure decomposition are also considered. The conclusion points to remaining gaps in theory regarding instrument-level term structure decomposition, and considers areas of application – typically bond valuation.

show abstract

Section: The Theoretical Model Of Term Structure Decomposition At Thementioning

confidence: 99%

Section: The Theoretical Model Of Term Structure Decomposition At Thementioning

confidence: 99%

Section: Axiomatic Structural Approachesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Interest Rate Term Structure Decomposition at the Instrument Level

Barnard¹

2019

AEF

Self Cite

View full text Add to dashboard Cite

show abstract

Interest Rate Term Structure Decomposition at the Instrument Level

Barnard

2016

SSRN Journal

Self Cite

View full text Add to dashboard Cite

The paper examines term structure decomposition at the instrument level -decomposing term structures for issues as well as the portfolio. Three different implementations are stipulated: axiomatic structural approaches, a sequential approach, and a base structure approach. The three different implementations are evaluated against a portfolio of risk-free government bonds. The goodness-of-fit and smoothness properties of instrument-level term structure decomposition are also considered. The conclusion points to remaining gaps in theory regarding instrument-level term structure decomposition, and considers areas of application -typically bond valuation.

show abstract

Rating Migration and Bond Valuation: Ahistorical Interest Rate and Default Probability Term Structures

Barnard

2017

SSRN Journal

Self Cite

View full text Add to dashboard Cite

The study extends the theoretical framework proposed to decompose rating migration matrices from bond market price data. Method to decompose default probability term structures for and from interest rate term structures for different rating categories, is delineated and empirically evaluated. Emphasis is squarely on using ahistorical (non-historical) market data, and utilizing actual market perceptions regarding default probabilities. The method naturally allows a mapping and transitioning between interest rate term structures and default probability term structures. Mapping to and fro interest rate term structures and default probability term structures introduces an additional level of triangulation and evaluation. The study examines the corresponding interest rate term structures of the default probability term structures of a typical rating migration matrix, and the corresponding default probability term structures of a typical market interest rate term structure set. It is found that the default probability term structures decomposed from market interest rate term structures significantly differ from rating migration matrix based default probability term structures. This may point to differing views on default probability term structures.

show abstract

Interest Rate Term Structure Decomposition: An Axiomatic Structural Approach

Cited by 4 publications

References 10 publications

Interest Rate Term Structure Decomposition at the Instrument Level

Interest Rate Term Structure Decomposition at the Instrument Level

Interest Rate Term Structure Decomposition at the Instrument Level

Rating Migration and Bond Valuation: Ahistorical Interest Rate and Default Probability Term Structures

Contact Info

Product

Resources

About