Beta Regimes for the Yield Curve

34 Pages Posted: 20 May 2005

See all articles by Francesco Audrino

Francesco Audrino

University of St. Gallen; Swiss Finance Institute

Enrico G. De Giorgi

University of St. Gallen - SEPS: Economics and Political Sciences; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: May 18, 2005

Abstract

We propose an affine 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, Affine Model, Term Structure of Interest Rate, Linearized Kalman Filter.

JEL Classification: E43, G12, C51, C52

Suggested Citation

Audrino, Francesco and De Giorgi, Enrico G., Beta Regimes for the Yield Curve (May 18, 2005). Available at SSRN: https://ssrn.com/abstract=726081 or http://dx.doi.org/10.2139/ssrn.726081

Francesco Audrino

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, CH-9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Enrico G. De Giorgi (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Department of Economics
Bodanstrasse 6
CH-9000 St. Gallen
Switzerland
+41712242430 (Phone)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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