A Principal-Component-Based Affine Term Structure Model

2014 ◽  
Author(s):  
Riccardo Rebonato ◽  
Ivan Saroka ◽  
Vladyslav Putyatin
Keyword(s):  
Term Structure ◽  
Principal Component ◽  
Structure Model ◽  
Affine Term Structure ◽  
Term Structure Model ◽  
Affine Term Structure Model

scholarly journals Estimating the Term Structure with Linear Regressions: Getting to the Roots of the Problem

2019 ◽  
Author(s):  
Adam Goliński ◽  
Peter Spencer
Keyword(s):  
Term Structure ◽  
Eigenvalue Decomposition ◽  
Structure Model ◽  
Affine Term Structure ◽  
Term Structure Model ◽  
Linear Estimators ◽  
Self Consistent ◽  
Ml Estimator ◽  
Affine Term Structure Model ◽  
Linear Regressions

Abstract Linear estimators of the affine term structure model are inconsistent since they cannot reproduce the factors used in estimation. This is a serious handicap empirically, giving a worse fit than the conventional ML estimator that ensures consistency. We show that a simple self-consistent estimator can be constructed using the eigenvalue decomposition of a regression estimator. The remaining parameters of the model follow analytically. Estimates from this model are virtually indistinguishable from that of the ML estimator. We apply the method to estimate various models of U.S. Treasury yields. These exercises greatly extend the range of models that can be estimated.

A Note on the Relation Between Principal Components and Dynamic Factors in Affine Term Structure Models

2005 ◽  
Vol 25 (1) ◽  
pp. 89 ◽  
Author(s):  
Caio Ibsen Rodrigues de Almeida
Keyword(s):  
Term Structure ◽  
Principal Components ◽  
Principal Component ◽  
Estimation Procedure ◽  
Structure Model ◽  
Affine Term Structure ◽  
Term Structure Model ◽  
Affine Term Structure Models ◽  
Term Structure Models ◽  
Dynamic Factors

In econometric applications of the term structure, affine models are among the most used ones. Nevertheless, even presenting a closed form characteristic function, its estimation procedure still presents many points to be understood and difficulties to be removed. In this note, we address one of these points. Suppose we estimate an affine dynamic term structure model, and also apply principal component analysis to the interest rate database available. A very plausible question would inquire about the relation (if any) between the principal components obtained assuming no dynamic restrictions, and the dynamic factors estimated using the proposed term structure model. We answer this question when estimating a standard affine model using zero coupon data. We show that each principal component can be approximated by a linear transformation of the dynamic factors. Although simple, this is an important step to the understanding of the mechanics of dynamic affine term structure models. A numerical example using U.S. zero data illustrates the result

Sign in / Sign up

Export Citation Format

Share Document