Switching VARMA Term Structure Models - Extended Version

Alain Monfort and Fulvio Pegoraro (fulvio.pegoraro@acpr.banque-france.fr)

Working papers from Banque de France

Abstract: The purpose of the paper is to propose a global discrete-time modeling of the term structure of interest rates able to capture simultaneously the following important features : (i) an historical dynamics of the factor driving term structure shapes involving several lagged values, and switching regimes; (ii) a specification of the stochastic discount factor (SDF) with time-varying and regime dependent risk-premia; (iii) explicit or quasi explicit formulas for zero-coupon bond and interest rate derivative prices; (iv) the positivity of the yields at each maturity. The first family of models we develop is given by the Switching Autoregressive Normal (SARN) and the Switching Vector Autoregressive Normal (SVARN) Factor-Based Term Structure Models of order p. The second family of models we study is given by the Switching Autoregressive Gamma (SARG) and the Switching Vector Autoregressive Gamma (SVARG) Factor-Based Term Structure Models of order p. Regime shifts are described by a Markov chain with (historical) non-homogeneous transition probabilities.

Keywords: Affine Term Structure Models; Stochastic Discount Factor; Car processes; Switching Regimes; VARMA processes; Lags; Positivity; Derivative Pricing. (search for similar items in EconPapers)
JEL-codes: C1 C5 E43 G12 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_191_2007.pdf (application/pdf)

Related works:
Working Paper: Switching VARMA Term Structure Models - Extended Version (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:191

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart (labolog@banque-france.fr).