Tractable Term Structure Models

• 成果类型: Article
• 署名作者: Feunou, Bruno; Fontaine, Jean-Sebastien; Le, Anh; Lundblad, Christian
• 署名单位: Bank of Canada; Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4214
• 发表日期: 2022
• 页码: 8411-8429
• 关键词: term structure; Lower bound; No arbitrage; no dominance

摘要

We introduce a new framework that facilitates term structure modeling with both positive interest rates and flexible time series dynamics but that is also tractable, meaning amenable to quick and robust estimation. Using both simulations and U.S. historical data, we compare our approach with benchmark Gaussian and stochastic volatility models as well as a shadow rate model that enforces positive interest rates. Our approach, which remains arbitrarily close to arbitrage free, offers a more accurate characterization of bond Sharpe ratios because of a better fit of the volatility dynamics and a more efficient estimation of the return dynamics. Further, the shadow rate and stochastic volatility models exhibit important restrictions that are largely absent in our approach.