Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Salomon Center >
Derivatives Research >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26876

Title: Term Structure Dynamics in Theory and Reality
Authors: Dai, Qiang
Singleton, Kenneth
Issue Date: 18-Jul-2002
Series/Report no.: S-DRP-02-06
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- ts 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/2451/26876
Appears in Collections:Derivatives Research

Files in This Item:

File Description SizeFormat
S-DRP-02-06.pdf505 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS