Identification of Maximal Affine Term Structure Models

Building on Duffie and Kan (1996), we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations. Because these variables possess unambiguous economic interpretations, they generate a representation that is globally identifiable. Further, this representation has more identifiable parameters than the "maximal" model of Dai and Singleton (2000). We implement this new representation for select three-factor models and find that model-independent estimates for the state vector can be estimated directly from yield curve data, which present advantages for the estimation and interpretation of multifactor models.


Published in:
The Journal of Finance, 63, 2, 743-795
Year:
2008
ISSN:
1540-6261
Keywords:
Laboratories:




 Record created 2013-08-07, last modified 2018-09-13


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