Revisiting the Shape of the Yield Curve: The Effect of Interest Rate Volatility

Christiansen, Charlotte; Lund, Jesper

doi:10.2139/ssrn.264139

Cited by 15 publications

(16 citation statements)

References 68 publications

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“…The role of conditional heteroscedasticity in the dynamics of the volatility of the yield factors has been highlighted by Christiansen (2004) for the short-rate and the slope of the U.S. term structure, and by Christiansen and Lund (2002) for the level, slope, and curvature factors.…”

mentioning

confidence: 99%

Yield-factor volatility models

Pérignon

Smith

2007

Journal of Banking & Finance

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confidence: 99%

Yield-factor volatility models

Pérignon

Smith

2007

Journal of Banking & Finance

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“…for inslancc. Christiansen and Lund (2002). Brandt and Chapman (2003), and Pérignon and Smith (2007) for similar proxies of yield factors.…”

Section: Datamentioning

confidence: 99%

An Empirical Investigation of the Level Effect in Australian Interest Rates

Gray

Smith

2008

Australian Journal of Management

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An extensive literature examines the dynamics of interest rates, with particular attention given to the positive relationship between interest-rate volatility and the level of interest rates-the so-called level effect. This paper examines the interaction bet^'een the estimated level effect and competing parameterisations of interest-rate volatility for the Australian yield curve. We adopt a new methodology that estimates elasticity in a multivariate setting that explicitly accommodates the correlations that exist between various yield factors. Results show that significant correlations exist betM>een the residuals of yield factors and that such correlations do indeed impact on model estimates. Within the multivariate setting, the level of the short rate is shown to be a crucial determinant of the conditional volatility of all three yield factors. Measures of model fit suggest that, in addition to the usual level effect, the incorporation of GARCH effects and possible regime shifts is important.

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“…The idea of relating interest rate volatility to the yield curve is not new. Brown and Schaefer (), Christiansen and Lund (), Joslin (), Litterman et al. (), and Phoa () relate the volatility to the curvature, or convexity, of the yield curve.…”

Section: Introductionmentioning

confidence: 99%

“…The idea of relating interest rate volatility to the yield curve is not new. Brown and Schaefer (1994), Christiansen and Lund (2005), Joslin (2010), , and Phoa (1997) relate the volatility to the curvature, or convexity, of the yield curve. Time series studies using long historical data on US interest rates find a relation between the volatility and the level of a particular yield, especially the short-term rate, such that high volatility is accompanied by high level (see, e.g., Chan et al 1992;Andersen and Lund 1997a;Gallant and Tauchen 1998;Ball and Torous 1999;Durham 2003).…”

Section: Introductionmentioning

confidence: 99%

Predicting Interest Rate Volatility Using Information on the Yield Curve

Takamizawa

2015

Int Rev Finance

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This study attempts to predict the volatility of yield curve factors using information on the cross-section of yields. Since a linear relationship between variances and levels of yields is reported to be inconsistent with recent data, we focus on nonlinear relationships. Further, rather than employing regression models, we employ dynamic models, where information on the yield curve is used for specifying factor covariance matrix as nonlinear functions of yield curve factors. Through such dynamic models, we uncover both usefulness and limitations of information content of the yield curve with respect to volatility prediction.

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Revisiting the Shape of the Yield Curve: The Effect of Interest Rate Volatility

Cited by 15 publications

References 68 publications

Yield-factor volatility models

Yield-factor volatility models

An Empirical Investigation of the Level Effect in Australian Interest Rates

Predicting Interest Rate Volatility Using Information on the Yield Curve

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