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Dynamical systems forced by shot noise as a new paradigm in the interest rate modeling

Alexander L. Baranovski

SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649

Abstract: In this paper we give a generalized model of the interest rates term structure including Nelson-Siegel and Svensson structure. For that we introduce a continuous m-factor exponential-polynomial form of forward interest rates and demonstrate its considerably better performance in a fitting of the zero-coupon curves in comparison with the well known Nelson-Siegel and Svensson ones. In the sequel we transform the model into a dynamic model for interest rates by designing a switching dynamical system of the considerably reduced dimension n

Keywords: forward interest rates; shot noise processes; switching dynamical systems; chaotic Brownian subordination; chaotic maps (search for similar items in EconPapers)
JEL-codes: C13 C20 C22 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-07
New Economics Papers: this item is included in nep-cba and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:hum:wpaper:sfb649dp2010-037

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