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Keywords:Term structure 

Working Paper
Estimating the Price of Default Risk

A firm's instantaneous probability of default is modeled as a square-root diffusion process. The parameters of these processes are estimated for 188 firms, using both the time series and cross-sectional (term structure) properties of the individual firms' bond prices. Although the estimated models are moderately successful at bond pricing, there is strong evidence of misspecification. The results indicate that single factor models of instantaneous default risk face a significant challenge in matching certain key features of actual corporate bond yield spreads. In particular, such models have ...
Finance and Economics Discussion Series , Paper 1996-29

Working Paper
The Equilibrium Term Structure of Equity and Interest Rates

We develop an equilibrium asset pricing model with Epstein-Zin recursive preferences that accounts for major stylized facts of the term structure of bond and equity risk premia. While the term structure of bond risk premia tends to be upward-sloping on average, the term structure of equity risk premia is known to be downward-sloping. {{p}} The equilibrium asset pricing model with long-run consumption risks has difficulty matching these stylized facts simultaneously. The standard calibration of these models follows Bansal and Yaron (2004), in which agents prefer the early resolution of ...
Research Working Paper , Paper RWP 16-11

Working Paper
Information in Yield Spread Trades

Using positions data on bond futures, I document that speculators' spread trades contain private information about future economic activities and asset prices. Strong steepening trades are associated with negative payroll surprises in subsequent months and can predict asset markets' reaction to future payroll releases, suggesting that speculators hold superior information about future payrolls. Steepening trades can also predict the rise of stock prices within a few hours before subsequent FOMC announcements, implying that the pre-FOMC stock drift is driven by informed speculation. Overall, ...
Finance and Economics Discussion Series , Paper 2019-025

Working Paper
No-Arbitrage Priors, Drifting Volatilities, and the Term Structure of Interest Rates

We derive a Bayesian prior from a no-arbitrage affine term structure model and use it to estimate the coefficients of a vector autoregression of a panel of government bond yields, specifying a common time-varying volatility for the disturbances. Results based on US data show that this method improves the precision of both point and density forecasts of the term structure of government bond yields, compared to a fully fledged term structure model with time-varying volatility and to a no-change random walk forecast. Further analysis reveals that the approach might work better than an exact term ...
Working Papers , Paper 202027


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