The Three Factor Models

Gennady A. Medvedev ()
Additional contact information
Gennady A. Medvedev: Belarusian State University

Chapter Chapter 7 in Yield Curves and Forward Curves for Diffusion Models of Short Rates, 2019, pp 115-125 from Springer

Abstract: Abstract The Duffie–Kan modelsDuffie–Kan model are analyzed that describe the dynamics of the short-term interest rate in the case when the state of the financial marketState of financial market is characterized not only by the level of the interest rate itself, but also by two more time-varying parameters. Three extensions of the one-factor model to a three-factor modelThree-factor model are considered, which lead to an affine term structure of yield. These extensions suggest that the parameters of a single-factor model, the level of interest rate yield and its volatility, are not constant values, but diffusion processes. In the first version, the volatility of the process of the level of yield interest rateYield interest rate does not depend on the level itself and is stochastic. In the second version, the process of the level of yield interest rate is a “square root” process. In the third version, the volatility of the process of the level of yield interest rate does not depend on the level itself and is deterministic. The main focus is on the properties of the yield curveYield curve and the forward curveForward curve , when the dynamics of the short-term interest rate is described by these three-factor modelsThree-factor model .

Keywords: Yield interest rates; Affine model; Term structure functions; Three-factor models (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:sprchp:978-3-030-15500-1_7

Ordering information: This item can be ordered from
http://www.springer.com/9783030155001

DOI: 10.1007/978-3-030-15500-1_7

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().