Modeling the term structure

Christoph Memmel and Lotta Heckmann

No 07/2025, Discussion Papers from Deutsche Bundesbank

Abstract: Based on an analysis of changes in the yields of German government bonds, we propose a simple model for the term structure of interest rates and show empirically that this model with two parameters (relating to the interest level and slope of the term structure) fits empirically well the data for a change horizon of one year or longer, especially in the low interest environment, and give examples for applications. In addition, we provide closed-form solutions for some interest bearing instruments and give a new interpretation for the convexity when this linear model for the term structure is used.

Keywords: Term Structure of Interest Rates; Duration and Convexity; Common Factors; Government Bonds (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/315493/1/1923114638.pdf (application/pdf)

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:zbw:bubdps:315493

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().