Term Structure Modeling of Negative Interest Rates
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AbstractThe low interest rate environment presents a challenge for the existing
term structure models. In this paper, we propose a framework to
construct new models from existing ones so that we can control how
negative the conditional probability of interest rates could be. We apply
this approach to the Nelson-Siegel model and, upon calibration, we
found that bond yields from Euro area and Japan markets strongly prefer
our proposed model framework, especially in periods when interest
rate levels are around or below zero.
Acceptance Date14/02/2017
All Author(s) ListSing Fan Chan, Qi Wu
Name of Conference21st Conference of the International Federation of Operational Research Societies
Start Date of Conference17/07/2017
End Date of Conference21/07/2017
Place of ConferenceQuebec City
Country/Region of ConferenceCanada
Year2017
LanguagesEnglish-United States

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