2010-07-06Buch DOI: 10.18452/4265
Dynamical systems forced by shot noise as a new paradigm in the interest rate modeling
Baranovski, Alexander L.
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 < m generating the forward rate curves in form a càdlàg function. A system is described by n-th order linear differential equation driven by a stochastic or chaotic shot noise. From fitted forward rates we specify the parameters of the switching system and discuss perspectives of our models to produce term-structure forecasts at both short and long horizons.
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Is Part Of Series: Sonderforschungsbereich 649: Ökonomisches Risiko - 37, SFB 649 Papers, ISSN:1860-5664