Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153075
Authors: 
Bernadell, Carlos
Coche, Joachim
Nyholm, Ken
Year of Publication: 
2006
Series/Report no.: 
ECB Working Paper 641
Abstract: 
This paper develops a new methodology for simulating fixed-income return distributions. It is shown that a traditional factor risk model, when augmented with reference returns, is capable of generating visually consistent return distributions for a broad range of fixed income instruments such as government and nongovernment instruments in the US dollar and Japanese yen bond markets. The reference returns result from a regime-switching Nelson-Siegel yield curve model following Bernadell, Coche and Nyholm (2005). Empirical results are encouraging: simulated distributions exhibit most characteristics observed in the fixed income markets such as non-normal right-skewed distributions for short maturity instrument while instruments with longer maturity are closer to being normally distributed.
Subjects: 
factor risk model
Regime switching
scenario analysis
JEL: 
C15
C32
C53
G11
G15
Document Type: 
Working Paper

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