Fit for purpose

Jessica James, Michael Leister and Christoph Rieger

Quantitative Finance, 2025, vol. 25, issue 6, 851-855

Abstract: Motivated by the fact that current model derived estimates of term premia seem unintuitive and inconsistent with the current environment, we review the available models and discover that even the most sophisticated estimates can be replicated by a simple linear combination of a few liquid interest rates for the USD and EUR markets. Assuming that short term changes in risk perception are well represented by this type of model, we find that survey based term premia estimates are very well fitted with similar techniques. It thus becomes possible to use survey-based data, which is an excellent measure of term premia but too infrequent to be of general utility, to produce daily data with this method. These survey based models give robust and intuitive results which can be updated as needed.

Date: 2025
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DOI: 10.1080/14697688.2025.2505584

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