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A Theory for the Term Structure of Interest Rates

Thomas Alderweireld and Jean Nuyts
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Thomas Alderweireld: DEXIA group,square de Meeus, 1000, Brussels,
Jean Nuyts: University of Mons-Hainaut, 20 place du Parc, Mons, Belgium

Finance from University Library of Munich, Germany

Abstract: The Convolution and Master equations governing the time behavior of the term structure of Interest Rates are set up both for continuous variables and for their discretised forms. The notion of Seed is introduced. The discretised theoretical distributions matching the empirical data from the Federal Reserve System (FRS) are deduced from a discretised seed which enjoys remarkable scaling laws. In particular the tails of the distributions are very well reproduced. These results may be used to develop new methods for the computation of the value-at-risk and fixed-income derivative pricing.

Keywords: Interest rates; Scaling laws; Term structure (search for similar items in EconPapers)
JEL-codes: C00 C14 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-05-24
Note: Type of Document - zip; pages: 33. A latex version can be obtained on http://babbage.sissa.it/cond-mat/0405293
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