Analyzing interest rate risk: stochastic volatility in the term structure of government bond yields
- We propose a Nelson-Siegel type interest rate term structure model where the underlying yield factors follow autoregressive processes with stochastic volatility. The factor volatilities parsimoniously capture risk inherent to the term structure and are associated with the time-varying uncertainty of the yield curve’s level, slope and curvature. Estimating the model based on U.S. government bond yields applying Markov chain Monte Carlo techniques we find that the factor volatilities follow highly persistent processes. We show that slope and curvature risk have explanatory power for bond excess returns and illustrate that the yield and volatility factors are closely related to industrial capacity utilization, inflation, monetary policy and employment growth. JEL Classification: C5, E4, G1
| Author: | Nikolaus HautschORCiDGND, Yangguoyi Ou |
|---|---|
| URN: | urn:nbn:de:hebis:30-63749 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2009,03 |
| Series (Serial Number): | CFS working paper series (2009, 03) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2009 |
| Year of first Publication: | 2009 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2009/04/16 |
| Tag: | Factor Models; Macroeconomic Fundamentals; Stochastic Volatility; Term Structure Modelling; Yield Curve Risk |
| GND Keyword: | Zinsänderungsrisiko |
| HeBIS-PPN: | 211593699 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
