Yield curve data choice and potential moral hazard: An empirical exercise on pricing callable bonds
Francisco Jareño () and
International Journal of Finance & Economics, 2022, vol. 27, issue 2, 2124-2145
There are alternative providers of zero‐coupon yield curve datasets. This essential input for most financial purposes can also be estimated from cross‐sectional market price information. Although all these datasets are representations of the same reality, each dataset provides estimations from different baskets of assets and different fitting techniques. As the properties of the yield curves and their time series dynamics are different, the results of pricing interest rate derivatives may be sensitive to the choice among these datasets. We compare our own spot rates estimation from GovPX bond data and three popular available interest rate datasets. From an empirical exercise on pricing callable bonds, we observe relevant differences in economic terms when volatilities from different inputs are used. Therefore, financial institutions may have an incentive for choosing unduly one or another yield curve dataset in their self‐interest, raising a moral hazard problem.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:27:y:2022:i:2:p:2124-2145
Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307
Access Statistics for this article
International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley
More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().