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Estimating dynamic affine term structure models
Duffee and Stanton (2012) demonstrated some pointed problems in estimating affine term structure models when the price of risk is dynamic, that is, risk factor dependent. The risk neutral parameters are estimated with precision, while the price of risk parameters are not. For the Gaussian models the...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2015
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| _version_ | 1867613245863362560 |
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| access_status_str | Open Access |
| author | Pitsillis, Zachry Steven |
| author2 | Ouwehand, Peter |
| author_browse | Ouwehand, Peter Pitsillis, Zachry Steven |
| author_facet | Ouwehand, Peter Pitsillis, Zachry Steven |
| author_sort | Pitsillis, Zachry Steven |
| collection | Thesis |
| description | Duffee and Stanton (2012) demonstrated some pointed problems in estimating affine term structure models when the price of risk is dynamic, that is, risk factor dependent. The risk neutral parameters are estimated with precision, while the price of risk parameters are not. For the Gaussian models they investigated, these problems are replicated and are shown to stem from a lack of curvature in the log-likelihood function. This geometric issue for identifying the maximum of an essentially horizontal log-likelihood has statistical meaning. The Fisher information for the price of risk parameters is multiple orders of magnitude smaller than that of the risk neutral parameters. Prompted by the recent results of Christoffersen et al. (2014) a remedy to the lack of curvature is attempted. An unscented Kalman filter is used to estimate models where the observations are portfolios of FRAs, Swaps and Zero Coupon Bond Options. While the unscented Kalman filter performs admirably in identifying the unobserved risk factor processes, there is little improvement in the Fisher information. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/15731 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:33:05.164Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2015 |
| publishDateRange | 2015 |
| publishDateSort | 2015 |
| publisher | Division of Actuarial Science |
| publisherStr | Division of Actuarial Science |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/15731 Estimating dynamic affine term structure models Pitsillis, Zachry Steven Ouwehand, Peter McWalter, Thomas Mathematical Finance Duffee and Stanton (2012) demonstrated some pointed problems in estimating affine term structure models when the price of risk is dynamic, that is, risk factor dependent. The risk neutral parameters are estimated with precision, while the price of risk parameters are not. For the Gaussian models they investigated, these problems are replicated and are shown to stem from a lack of curvature in the log-likelihood function. This geometric issue for identifying the maximum of an essentially horizontal log-likelihood has statistical meaning. The Fisher information for the price of risk parameters is multiple orders of magnitude smaller than that of the risk neutral parameters. Prompted by the recent results of Christoffersen et al. (2014) a remedy to the lack of curvature is attempted. An unscented Kalman filter is used to estimate models where the observations are portfolios of FRAs, Swaps and Zero Coupon Bond Options. While the unscented Kalman filter performs admirably in identifying the unobserved risk factor processes, there is little improvement in the Fisher information. 2015-12-09T14:44:02Z 2015-12-09T14:44:02Z 2015 Master Thesis Masters MPhil http://hdl.handle.net/11427/15731 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Pitsillis, Zachry Steven Estimating dynamic affine term structure models |
| thesis_degree_str | Master's |
| title | Estimating dynamic affine term structure models |
| title_full | Estimating dynamic affine term structure models |
| title_fullStr | Estimating dynamic affine term structure models |
| title_full_unstemmed | Estimating dynamic affine term structure models |
| title_short | Estimating dynamic affine term structure models |
| title_sort | estimating dynamic affine term structure models |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/15731 |
| work_keys_str_mv | AT pitsilliszachrysteven estimatingdynamicaffinetermstructuremodels |