A General Equilibrium Duffie and Kan Term Structure Model

29 Pages Posted: 1 Feb 1997

Date Written: June 2002

Abstract

The Duffie-Kan (1996) model, which can be considered as the most general affine term structure model, was originally specified in terms of risk-adjusted stochastic processes for its state variables. Here, the Duffie and Kan (1996) model is initially fitted into a general equilibrium framework under the physical probability measure, and then its equilibrium specification under an equivalent martingale measure is derived consistently with Duffie and Kan (1996). The resulting analytical solution for the vector of factors' risk premiums enables the econometric estimation of the model' parameters using a "time-series" or a "panel-data" approach, and nests, as special cases, several other specifications already proposed in the literature.

Keywords: Exponential-affine term structure models, Change of measures, Power utility, Log utility

JEL Classification: G11, G12

Suggested Citation

Nunes, João Pedro Vidal, A General Equilibrium Duffie and Kan Term Structure Model (June 2002). Available at SSRN: https://ssrn.com/abstract=15142 or http://dx.doi.org/10.2139/ssrn.15142

João Pedro Vidal Nunes (Contact Author)

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