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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27159
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| Title: | The Central Tendency: A Second Factor in Bond Yields |
| Authors: | Balduzzi, Pierluigi
Das, Sanjiv Ranjan
Foresi, Silverio |
| Keywords: | term structure |
| Issue Date: | Jan-1995 |
| Series/Report no.: | FIN-94-009 |
| Abstract: | We assume the short-term rate to revert towards a central tendency which
in, turn, is stochastically changing over time. We impose minimal
restrictions on the joint behavior of the short-term rate and the
central-tendency factor, and derive implications for the term structure
of interest rates. The analysis suggests a proxy for the central
tendency which is then used to estimate the short-term rate process. Our
model captures variations in the short-term rate better than the Vasicek
(1977) and Cox, Ingersoll and Ross (1985) models, where the central
tendency is assumed to be constant. Also, the central-tendency proxy
explains the conditional volatility of the short-term rate better than
the short-term rate itself. |
| URI: | http://hdl.handle.net/2451/27159 |
| Appears in Collections: | Finance Working Papers
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