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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27335
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| Title: | Term Structure Dynamics in Theory and Reality |
| Authors: | Dai, Qiang
Singleton, Kenneth |
| Issue Date: | 18-Jul-2002 |
| Series/Report no.: | S-MF-02-05 |
| Abstract: | This paper is a critical survey of models designed for pricing fixed
income securities and their associated term structures of market yields.
Our primary focus is on the interplay between the theoretical
specification of dynamic term structure models and their empirical fit
to historical changes in the shapes of yield curves. We begin by
overviewing the dynamic term structure models that have been fit to
treasury or swap yield curves and in which the risk factors follow
diffusions, jump-diffusion, or have “switching regimes." Then
the goodness-of-fits of these models are assessed relative to their
abilities to: (i) match linear projections of changes in yields onto the
slope of the yield curve; (ii) match the persistence of conditional
volatilities, and the shapes of term structures of unconditional
volatilities, of yields; and (iii) to reliably price caps, swaptions,
and other fixed-income derivatives. For the case of defaultable
securities we explore the relative fits to historical yield spreads. |
| URI: | http://hdl.handle.net/2451/27335 |
| Appears in Collections: | Macro Finance
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