Disciplines
Finance and Financial Management
Abstract
We make two contributions to the study of interest rates. The first is to characterize their dynamics in a new way. We estimate forecasting relations based on one-period changes in forward rates, which are more easily compared than earlier work on yields to the stationary theory of bond pricing. The second is to approximate these dynamics and other salient features of interest rates with an affine model. We show that models with "negative" factors come closer to accounting for the properties of interest rates, including their dynamics, than multifactor Cox-Ingersoll-Ross models.
Recommended Citation
Backus, David; Foresi, Silverio; Mozumdar, Abon; and Wu, Liuren, "Predictable Changes in Yields and Forward Rates" (2000). CRIF Working Paper series. 21.
https://research.library.fordham.edu/crif_working_papers/21
