Affine Term-Structure Models: Theory and Implementation

Bank of Canada Working Paper No. 2001-15

68 Pages Posted: 14 Jan 2008

Date Written: October 2001

Abstract

Affine models describe the stylized time-series properties of the term structure of interest rates in a reasonable manner, they generalize relatively easily to higher dimensions, and a vast academic literature exists relating to their implementation. This combination of characteristics makes the affine class a natural introductory point for modelling interest rate dynamics. The author summarizes and synthesizes the theoretical and practical specifics relating to this analytically attractive class of models. This summary is accomplished in a self-contained manner with sufficient detail so that relatively few technical points will be left for the reader to ponder. As such, this paper represents a first step towards advancing the Bank of Canada's research agenda in this area, with a view to using these models to assist with practical debt and risk-management problems currently under study.

Keywords: Interest rates, Econometric and statistical methods, Debt management

JEL Classification: C0, C5, G0

Suggested Citation

Bolder, David Jamieson, Affine Term-Structure Models: Theory and Implementation (October 2001). Available at SSRN: https://ssrn.com/abstract=1082826 or http://dx.doi.org/10.2139/ssrn.1082826

David Jamieson Bolder (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

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