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Dynamical systems forced by shot noise as a new paradigm in the interest rate modeling

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  • Baranovski, Alexander L.

Abstract

In this paper we give a generalized model of the interest rates term structure including Nelson-Siegel and Svensson structure. For that we introduce a continuous m-factor exponential-polynomial form of forward interest rates and demonstrate its considerably better performance in a fitting of the zero-coupon curves in comparison with the well known Nelson-Siegel and Svensson ones. In the sequel we transform the model into a dynamic model for interest rates by designing a switching dynamical system of the considerably reduced dimension n

Suggested Citation

  • Baranovski, Alexander L., 2010. "Dynamical systems forced by shot noise as a new paradigm in the interest rate modeling," SFB 649 Discussion Papers 2010-037, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2010-037
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    2. Hecht, Carolin & Hanewald, Katja, 2010. "Sociodemographic, economic, and psychological drivers of the demand for life insurance: Evidence from the German Retirement Income Act," SFB 649 Discussion Papers 2010-034, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    12. Abbassi, Puriya & Nautz, Dieter, 2010. "Monetary transmission right from the start: The (dis)connection netween the money market and the ECB's main refinancing rates," Discussion Papers 2010/7, Free University Berlin, School of Business & Economics.
    13. Horst, Ulrich & Moreno-Bromberg, Santiago, 2010. "Efficiency and equilibria in games of optimal derivative design," SFB 649 Discussion Papers 2010-035, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    14. Panov, Vladimir, 2010. "Non-gaussian component analysis: New ideas, new proofs, new applications," SFB 649 Discussion Papers 2010-026, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    15. Fasten, Erik R. & Hofmann, Dirk, 2010. "Two-sided Certification: The market for Rating Agencies," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 338, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    16. Kappus, Johanna & Reiß, Markus, 2011. "Estimation of the characteristics of a Lévy process observed at arbitrary frequency," SFB 649 Discussion Papers 2011-027, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    17. Horst, Ulrich & Pirvu, Traian A. & Dos Reis, Gonçalo, 2010. "On securitization, market completion and equilibrium risk transfer," SFB 649 Discussion Papers 2010-010, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    18. Fasten, Erik R. & Hofmann, Dirk, 2010. "Two-sided certification: The market for rating agencies," SFB 649 Discussion Papers 2010-007, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    19. Binzel, Christine & Fehr, Dietmar, 2010. "Social relationships and trust," SFB 649 Discussion Papers 2010-028, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    20. Scheffel, Juliane, 2010. "Honey, I'll be working late tonight. The effect of individual work routines on leisure time synchronization of couples," SFB 649 Discussion Papers 2010-016, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    21. Fiocco, Raffaele, 2010. "The optimal industry structure in a vertically related market," SFB 649 Discussion Papers 2010-024, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    22. Mengmeng Guo & Wolfgang Karl Härdle, 2017. "Adaptive Interest Rate Modelling," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 36(3), pages 241-256, April.
    23. Basteck, Christian & Daniëls, Tijmen R. & Heinemann, Frank, 2010. "Characterising equilibrium selection in global games with strategic complementarities," SFB 649 Discussion Papers 2010-008, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    24. Ulrich Horst & Felix Naujokat, 2008. "Illiquidity and Derivative Valuation," Papers 0901.0091, arXiv.org.
    25. repec:diw:diwwpp:dp1007 is not listed on IDEAS
    26. Basteck, Christian & Daniëls, Tijmen R. & Heinemann, Frank, 2013. "Characterising equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2620-2637.
    27. Okhrin, Ostap, 2010. "Fitting high-dimensional copulae to data," SFB 649 Discussion Papers 2010-022, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    28. Binzel, Christine & Fehr, Dietmar, 2010. "Social relationships and trust," SFB 649 Discussion Papers 2010-028, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    Citations

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    Cited by:

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    3. Borak, Szymon & Misiorek, Adam & Weron, Rafał, 2010. "Models for heavy-tailed asset returns," SFB 649 Discussion Papers 2010-049, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    4. Panov, Vladimir, 2010. "Estimation of the signal subspace without estimation of the inverse covariance matrix," SFB 649 Discussion Papers 2010-050, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    6. Schulze, Franziska, 2010. "Spatial dependencies in German matching functions," SFB 649 Discussion Papers 2010-054, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    7. Grith, Maria & Krätschmer, Volker, 2010. "Parametric estimation of risk neutral density functions," SFB 649 Discussion Papers 2010-045, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    9. repec:hum:wpaper:sfb649dp2010-056 is not listed on IDEAS
    10. Janek, Agnieszka & Kluge, Tino & Weron, Rafał & Wystup, Uwe, 2010. "FX smile in the Heston model," SFB 649 Discussion Papers 2010-047, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    14. Nikolaus Hautsch & Peter Malec & Melanie Schienle, 2014. "Capturing the Zero: A New Class of Zero-Augmented Distributions and Multiplicative Error Processes," Journal of Financial Econometrics, Oxford University Press, vol. 12(1), pages 89-121.
    15. Mammen, Enno & Rothe, Christoph & Schienle, Melanie, 2010. "Nonparametric regression with nonparametrically generated covariates," SFB 649 Discussion Papers 2010-059, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    More about this item

    Keywords

    forward interest rates; shot noise processes; switching dynamical systems; chaotic Brownian subordination; chaotic maps;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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