Beta Regimes for the Yield Curve

Francesco Audrino and Enrico De Giorgi ()

No 244, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We propose an a�ne term structure model which accommodates non-linearities in the drift and volatility function of the short-term interest rate. Such non-linearities are a consequence of discrete beta-distributed regime shifts constructed on multiple thresholds. We derive iterative closed-form formula for the whole yield curve dynamics that can be estimated using a linearized Kalman filter. Fitting the model on US data, we collect empirical evidence of its potential in estimating conditional volatility and correlation across yields.

Keywords: Threshold Regime Switching Model; A�ne Model; Term Structure of Interest Rate; Linearized Kalman Filter (search for similar items in EconPapers)
JEL-codes: C51 C52 E43 G12 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (14)

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