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http://hdl.handle.net/10419/19634
  
Title:Bond pricing when the short term interest rate follows a threshold process PDF Logo
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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