Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287246 
Year of Publication: 
2021
Citation: 
[Journal:] Mathematics and Financial Economics [ISSN:] 1862-9660 [Volume:] 16 [Issue:] 2 [Publisher:] Springer [Place:] Berlin, Heidelberg [Year:] 2021 [Pages:] 239-266
Publisher: 
Springer, Berlin, Heidelberg
Abstract: 
We propose an affine term structure model that allows for tenor-dependence of yield curves and thus for different risk categories in interbank rates, an important feature of post-crisis interest rate markets. The model has a Nelson–Siegel factor loading structure and thus economically well interpretable parameters. We show that the model is tractable in terms of estimation and provides good in-sample fit and out-of-sample forecasting performance. The proposed model is arbitrage-free across maturities and tenors, and thus perfectly suited for risk management and pricing purposes. We apply our framework to the pricing of caplets in order to illustrate its practical applicability and its suitability for stress testing.
Subjects: 
Affine processes
Dynamic factor model
Multiple term structures
Nelson–Siegel curve
JEL: 
E43
G12
G17
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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