Exploiting Predictability in the Time-Varying Shape of the Term Structure of Interest Rates

This paper presents evidence of predictability in the time-varying shape of the U.S. term structure of interest rates using a robust recursive modelling approach based on a Bayesian mixture of multi-factor models.

Author(s) :

Frank J. Fabozzi, Frederick Frank

Frank J. FabozziFrederick Frank Adjunct Professor of Finance at Yale School of Management in New Haven, CT

Lionel Martellini

Professor of Finance and Scientific Director of the EDHEC Risk and Asset Management Research Centre

Philippe Priaulet

Derivatives Strategist at HSBC-CCF in Paris and Associate Professor in the Department of Mathematics at the University of Evry Val d'Essonne, France.

Presentation :

We find that variables such as default spread, equity volatility, short-term and forward rates, among others, can be used to predict changes in the slope of the yield curve, and also, albeit to a lesser extent, changes in the curvature of the yield curve. By using systematic trading strategies based on butterfly swaps, we also find that this evidence of predictability in the shape of the yield curve is economically significant in addition to being statistically significant.
Pdf
Exploiting Predictability in the Time-Varying Shape of the Term Structure of Int...
(365.64 KB)
Type : Working paper
Date : le 06/08/2007
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

See Also

Otherwise#5 : New ways for economy and business
- 23-09-2017
An exclusive interview of Emmanuel Métais, Dean of EDHEC Business School in the brand...
- 08-09-2017
Ranked 4th in France, EDHEC reinforces its position in the world’s Top 20 (16th place) in the 2017 Financial Times Master in Management Ranking, among prestigious international institutions...
- 30-08-2017
EDHEC welcomes students and participants who are back to school in the upcoming weeks. A positive and international atmosphere (more than 100 nationalities expected) shines through our...
Innovation with limited resources (Video)
- 18-08-2017
The article "Innovation with Limited Resources: Management Lessons from the German...