An Evaluation of Alternative Empirical Models of the Term Structure of Interest Rates

1976 ◽  
Vol 31 (4) ◽  
pp. 1035 ◽  
Author(s):  
Steven W. Dobson ◽  
Richard C. Sutch ◽  
David E. Vanderford
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Empirical Models

AN EVALUATION OF ALTERNATIVE EMPIRICAL MODELS OF THE TERM STRUCTURE OF INTEREST RATES*

1976 ◽  
Vol 31 (4) ◽  
pp. 1035-1065 ◽  
Author(s):  
Steven W. Dobson ◽  
Richard C. Sutch ◽  
David E. Vanderford
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Empirical Models

ACCURATE OF VAR CALCULATED USING EMPIRICAL MODELS OF THE TERM STRUCTURE

2009 ◽  
Vol 12 (06) ◽  
pp. 811-832 ◽  
Author(s):  
PILAR ABAD ◽  
SONIA BENITO
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Confidence Level ◽  
Value At Risk ◽  
Principal Component ◽  
Empirical Models ◽  
Two Dimensions ◽  
Parametric Models ◽  
Equal Weight ◽  
Moving Averages

This work compares the accuracy of different measures of Value at Risk (VaR) of fixed income portfolios calculated on the basis of different multi-factor empirical models of the term structure of interest rates (TSIR). There are three models included in the comparison: (1) regression models, (2) principal component models, and (3) parametric models. In addition, the cartography system used by Riskmetrics is included. Since calculation of a VaR estimate with any of these models requires the use of a volatility measurement, this work uses three types of measurements: exponential moving averages, equal weight moving averages, and GARCH models. Consequently, the comparison of the accuracy of VaR estimates has two dimensions: the multi-factor model and the volatility measurement. With respect to multi-factor models, the presented evidence indicates that the Riskmetrics model or cartography system is the most accurate model when VaR estimates are calculated at a 5% confidence level. On the contrary, at a 1% confidence level, the parametric model (Nelson and Siegel model) is the one that yields more accurate VaR estimates. With respect to the volatility measurements, the results indicate that, as a general rule, no measurement works systematically better than the rest. All the results obtained are independent of the time horizon for which VaR is calculated, i.e. either one or ten days.

Sign in / Sign up

Export Citation Format

Share Document