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An Analysis of Yield Curve Notes

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  • Ogden, Joseph P

Abstract

This paper analyzes a new security, the yield curve note, which pays interest at a rate that varies inversely with short-term interest rates. A valuation model is presented, the parameters of the model are estimated empirically, and the estimated model is used to explore the price behavior and risk characteristics of yield curve notes in comparison with fixed rate notes. The risk of a yield curve note is approximately twice as great as a fixed rate note with the same maturity. The unique risk characteristics of yield curve notes make them useful in immunization strategies for financial institutions. Copyright 1987 by American Finance Association.

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  • Ogden, Joseph P, 1987. "An Analysis of Yield Curve Notes," Journal of Finance, American Finance Association, vol. 42(1), pages 99-110, March.
    • Handle: RePEc:bla:jfinan:v:42:y:1987:i:1:p:99-110
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    Cited by:

    1. Zvika Afik & Ohad Arad & Koresh Galil, 2012. "Using Merton model: an empirical assessment of alternatives," Working Papers 1202, Ben-Gurion University of the Negev, Department of Economics.
    2. Tse, Y.K., 1997. "Short-term interest rate models and generation of interest rate scenarios," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 43(3), pages 475-480.
    3. Vanden, Joel M., 2005. "Equilibrium analysis of volatility clustering," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 374-417, June.

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