 Term Structure Dynamics in Theory and RealityQiang Dai and Kenneth Singleton The Review of Financial Studies, 2003, vol. 16, issue 3, 631-678 Abstract: This article 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-fit of these models is 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. Copyright 2003, Oxford University Press. Date: 2003 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:16:y:2003:i:3:p:631-678 Ordering information: This journal article can be ordered from Access Statistics for this article The Review of Financial Studies is currently edited by Itay Goldstein More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC. |
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