IDEAS home Printed from https://ideas.repec.org/a/ids/ijbder/v4y2020i2p126-151.html
   My bibliography  Save this article

Features of skewness-adjusted binomial interest rate models

Author

Listed:
  • R. Stafford Johnson
  • Amit Sen

Abstract

This paper examines four distinctive features of a skewness-adjusted binomial interest rate model. Specifically: 1) implied spot yield curves generated from a skewness-adjusted binomial interest rate tree are consistent with interest rate expectations theory; 2) implied forward rates and implied yields on futures contracts are equal when the skewness-adjusted binomial interest rate tree is calibrated to an end-of-the period distribution reflecting an increasing, decreasing, or stable interest rate trend; 3) the asymptotic properties of the skewness-adjusted binomial interest rate model elevate the importance of the mean in determining the up and down parameters for the case of a large number of sub-periods; 4) the skewness-adjusted Black-Derman-Toy model retains its arbitrage-free features, but loses them when the variability conditions are not adjusted to account for skewness.

Suggested Citation

  • R. Stafford Johnson & Amit Sen, 2020. "Features of skewness-adjusted binomial interest rate models," International Journal of Bonds and Derivatives, Inderscience Enterprises Ltd, vol. 4(2), pages 126-151.
    • Handle: RePEc:ids:ijbder:v:4:y:2020:i:2:p:126-151
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=109333
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijbder:v:4:y:2020:i:2:p:126-151. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=405 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.