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Empirically effective bond pricing model for USGBs and analysis on term structures of implied interest rates in financial crisis

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  • Takeaki Kariya
  • Yoshiro Yamamura
  • Zhu Wang

Abstract

This paper makes a comprehensive empirical analysis on US Government bond (USGB) prices for a period of 60 months, including the financial crisis in 2008. The model is a cross-sectional model with stochastic discount function that takes into account bond attributes of coupon rate and maturity and that simultaneously values individual fixed-coupon bonds. First, we briefly clarify the theoretical relation between our stochastic discount function approach and the interest rate approach in mathematical finance. Then we propose two specific and effective models. Third, the derived yields are compared to swap rates to see the validity of the models.

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  • Takeaki Kariya & Yoshiro Yamamura & Zhu Wang, 2016. "Empirically effective bond pricing model for USGBs and analysis on term structures of implied interest rates in financial crisis," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 45(6), pages 1580-1606, March.
    • Handle: RePEc:taf:lstaxx:v:45:y:2016:i:6:p:1580-1606
    DOI: 10.1080/03610926.2014.901377
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    Cited by:

    1. Takeaki Kariya & Yoko Tanokura & Hideyuki Takada & Yoshiro Yamamura, 2016. "Measuring Credit Risk of Individual Corporate Bonds in US Energy Sector," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(3), pages 229-262, September.
    2. Takeaki Kariya & Yoshiro Yamamura & Koji Inui, 2019. "Empirical Credit Risk Ratings of Individual Corporate Bonds and Derivation of Term Structures of Default Probabilities," JRFM, MDPI, vol. 12(3), pages 1-29, July.

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