A term structure model under cyclical fluctuations in interest rates

We propose a flexible yet tractable model of the term structure of interest rates (TSIR). Term structure models attempt to explain how interest rates depend on their maturities at a given point in time, characterizing the rela- tionship between short-term and long-term rates. Our model can reproduce...

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Detalles Bibliográficos
Autores: Moreno, Manuel, Novales Cinca, Alfonso Santiago, Platania, Federico
Tipo de recurso: informe técnico
Fecha de publicación:2019
País:España
Institución:Universidad Complutense de Madrid (UCM)
Repositorio:Docta Complutense
Idioma:inglés
OAI Identifier:oai:docta.ucm.es:20.500.14352/17526
Acceso en línea:https://hdl.handle.net/20.500.14352/17526
Access Level:acceso abierto
Palabra clave:D53
E43
G13
C58
E32
C31
Term structure of interest rates
cyclical fluctuations
bond pricing
TSIR fitting performance
interest rates forecast.
Dinero
Econometría (Economía)
Mercados bursátiles y financieros
5304.06 Dinero y Operaciones Bancarias
5302 Econometría
Descripción
Sumario:We propose a flexible yet tractable model of the term structure of interest rates (TSIR). Term structure models attempt to explain how interest rates depend on their maturities at a given point in time, characterizing the rela- tionship between short-term and long-term rates. Our model can reproduce and fit a variety of TSIR shapes by capturing cyclical fluctuations of interest rates, different monetary policy reactions as witnessed pre- and post-crisis as well as the effect of the business cycle or exogenous shocks. Our modelling approach also provides a characterization of long-term fluctuations in the mean level of interest rates unveiling the effects of monetary policy in- terventions in interest rates. Furthermore, using daily US data, we compare the empirical ability of our model to both fit and forecast the TSIR under different economic scenarios. We show that our model improves pricing and risk management by fitting and predicting interest rates more accurately and precisely than do existing TSIR models.