1 option
Reverse Engineering the Yield Curve / David K. Backus, Stanley E. Zin.
- Format:
- Book
- Author/Creator:
- Backus, David K.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w4676.
- NBER working paper series no. w4676
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1994.
- Summary:
- Prices of riskfree bonds in any arbitrage-free environment are governed by a pricing kernel: given a kernel, we can compute prices of bonds of any maturity we like. We use observed prices of multi-period bonds to estimate, in a log-linear theoretical setting, the pricing kernel that gave rise to them. The high-order dynamics of our estimated kernel help to explain why first-order, one-factor models of the term structure have had difficulty reconciling the shape of the yield curve with the persistence of the short rate. We use the estimated kernel to provide a new perspective on Hansen-Jagannathan bounds, the price of risk, and the pricing of bond options and futures.
- Notes:
- Print version record
- March 1994.
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