Multivariate Term Structure Models with Level and Heteroskedasticity Effects
Charlotte Christiansen
No 02-19, Finance Working Papers from University of Aarhus, Aarhus School of Business, Department of Business Studies
Abstract:
The paper introduces and estimates a multivariate level-GARCH model for the long rate and the term structure spread where the conditional volatility is proportional
to the y’th power of the variable itself (level effects) and the conditional covariance
matrix evolves according to a multivariate GARCH process (heteroskedasticity effects).
The conditional long rate variance exhibits heteroskedasticity effects and level effects in
accordance with the square-root model. The conditional spread variance exhibits heteroskedasticity
effects but no level effects. The level-GARCH model is preferred above the
GARCH model and the level model. GARCH effects are more important than level effects.
Keywords: Heteroskedasticity effects; Level effects; Multivariate level-GARCH model; Two-factor term structure model (search for similar items in EconPapers)
Pages: 29 pages
Date: 2003-05-09
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (4)
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http://www.hha.dk/fin/finance/Research/D02_19.PDF (application/pdf)
Related works:
Journal Article: Multivariate term structure models with level and heteroskedasticity effects (2005) 
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Persistent link: https://EconPapers.repec.org/RePEc:hhb:aarfin:2002_019
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