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Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank >
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http://hdl.handle.net/10419/19634
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| Title: | | Bond pricing when the short term interest rate follows a threshold process  |
| Authors: | | Lemke, Wolfgang Archontakis, Theofanis |
| Issue Date: | | 2006 |
| Series/Report no.: | | Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2006,06 |
| Abstract: | | Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields, respectively. This is in contrast to linear short-rate process which imply an affine yield function. The intervals for which convexity or concavity prevails increase with time to maturity. |
| Subjects: | | Threshold process term structure of interest rates nonlinear yield function |
| JEL: | | C63 G12 E43 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank
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