### Abstract

Lingua originale | English |
---|---|

pagine (da-a) | 299-313 |

Numero di pagine | 15 |

Rivista | International Journal of Risk Assessment and Management |

Volume | 15 |

Stato di pubblicazione | Published - 2011 |

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### All Science Journal Classification (ASJC) codes

- Business and International Management
- Statistics, Probability and Uncertainty
- Management Science and Operations Research

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*International Journal of Risk Assessment and Management*,

*15*, 299-313.

**Simulating term structure of interest rates with arbitrary marginals.** / Consiglio, Andrea; Guirreri, Sergio Salvino.

Risultato della ricerca: Article

*International Journal of Risk Assessment and Management*, vol. 15, pagg. 299-313.

}

TY - JOUR

T1 - Simulating term structure of interest rates with arbitrary marginals

AU - Consiglio, Andrea

AU - Guirreri, Sergio Salvino

PY - 2011

Y1 - 2011

N2 - Decision models under uncertainty rely their analysis on scenarios of the economic factors. A key economic factor is the term structure of interest rates (yields). Simulation models of the yield curve usually assume that the conjugate distribution of the interest rates is lognormal. Dynamic models, like vector auto-regression, implicitly postulate that the logarithm of the interest rates is normally distributed.Statistical analyses have, however, shown that stationary transformations (yield changes) of the interest rates are substantially leptokurtic, thus posing serious doubts on the reliability of the available models.We propose in this paper a VARTA model (Biller and Nelson, 2003) to simulate term structures of the interest rates with arbitrary marginals. We will show that such an approach is able to simulate paths of the entire yield curve with distributional properties very close to those found in the empirical data.

AB - Decision models under uncertainty rely their analysis on scenarios of the economic factors. A key economic factor is the term structure of interest rates (yields). Simulation models of the yield curve usually assume that the conjugate distribution of the interest rates is lognormal. Dynamic models, like vector auto-regression, implicitly postulate that the logarithm of the interest rates is normally distributed.Statistical analyses have, however, shown that stationary transformations (yield changes) of the interest rates are substantially leptokurtic, thus posing serious doubts on the reliability of the available models.We propose in this paper a VARTA model (Biller and Nelson, 2003) to simulate term structures of the interest rates with arbitrary marginals. We will show that such an approach is able to simulate paths of the entire yield curve with distributional properties very close to those found in the empirical data.

KW - Scenario simulation

KW - fat tails

KW - vector autoregressive models

KW - yield curve

UR - http://hdl.handle.net/10447/60215

M3 - Article

VL - 15

SP - 299

EP - 313

JO - International Journal of Risk Assessment and Management

JF - International Journal of Risk Assessment and Management

SN - 1466-8297

ER -