Estimating the risk premium of swap spreads. Two econometric GARCH-based techniques

Carolina Castagnetti

Applied Financial Economics, 2004, vol. 14, issue 2, 93-104

Abstract: Two 'reduced-form' GARCH-M models are used to estimate the German swap spreads from a risk premium point of view. The first model makes use of a parametric GARCH in mean model that has been extended to the case of a vector autoregressive process. The second is a semiparametric model where the conditional variance is formalized as a GARCH process while conditional mean is an arbitrary function of it. It is shown that the monotonic relation implied by both GARCH in mean models between the delta swap spreads and its conditional variance holds for all maturities considered. Not surprisingly, the semiparametric model leads to a better explanation of the swap spreads dynamic than the parametric specification.

Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/0960310042000176362 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:apfiec:v:14:y:2004:i:2:p:93-104

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/0960310042000176362

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().