A Jump-Diffusion Yield-Factor Model of Interest Rates

46 Pages Posted: 10 May 2010

See all articles by Renato G. Flores

Renato G. Flores

Getulio Vargas Foundation (FGV) - Brazilian Institute of Economics

Ricardo D. Brito

FEA-USP

Date Written: March 5, 2001

Abstract

In this paper, the Federal Funds Rate Target and the one-year T-Bill are the two yield-factors explaining the movements of the term structure, Using Duffie and Kan (1996) approach, the two rates are consistently modeled and an affine model of the term structure results that is able to incorporate the Federal Open Market Committee discontinuous moves. An explicit formula for the zero-coupon bond price is derived and the model presents good fit to the January 1990-December 2000 monthly U.S. term structure. The factors level, slope and curvature are respectively identified as the 1-year T-Bill, the Federal Funds Rate Target and their spread.

Keywords: Exponential affine model, Discontinuous short-rate target, monetary policy risk

JEL Classification: E43, E52, G13

Suggested Citation

Flores, Renato G. and Brito, Ricardo Dias, A Jump-Diffusion Yield-Factor Model of Interest Rates (March 5, 2001). Available at SSRN: https://ssrn.com/abstract=1602382 or http://dx.doi.org/10.2139/ssrn.1602382

Renato G. Flores

Getulio Vargas Foundation (FGV) - Brazilian Institute of Economics ( email )

Centro de Polticas Sociais - CPS
Rio de Janeiro 22253-900
Brazil

HOME PAGE: http://epge.fgv.br/portal/pessoas/docente/2023.html

Ricardo Dias Brito (Contact Author)

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900
Brazil

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
62
Abstract Views
593
rank
389,008
PlumX Metrics