Complutense University Library

A factor analysis of volatility across the term structure: the Spanish case

Benito, Sonia and Novales Cinca, Alfonso (2005) A factor analysis of volatility across the term structure: the Spanish case. [Working Paper or Technical Report]

[img]
Preview
PDF
2MB

Official URL: http://eprints.ucm.es/7872/

View download statistics for this eprint

==>>> Export to other formats

Abstract

We show how the term structure of volatilities for zero-cupon interest rates from the Spanish secondary debt market can be explained by a reduced number of factors. This factor representation can be used to produce time series volatilities across the whole term structure. As an alternative, volatilities can also be derived from a factor model for interest rates themselves. We find evidence contrary to the hypothesis that these two procedures lead to statistically equivalent time series, so that choosing the right model to estimate volatility is far from trivial. The volatility factor model fits univariate EGARCH volatility time series much better than the interest rate factor model does. However, observed differences seem to be of little
consequence for VaR estimation on zero coupon bonds.

Item Type:Working Paper or Technical Report
Uncontrolled Keywords:analysis of volatility
Subjects:Social sciences > Economics > Econometrics
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2005
Number:0502
ID Code:7872
References:

Alexander, C.O. (2001), “Orthogonal GARCH,” Mastering Risk (C.O. Alexander, Ed.) Volume 2. Financial Times – Prentice Hall pp 21-38.

Abad, P. and S. Benito (2004). “Using Nelson-Siegel model to calculate VaR of a Fixed Income Portfolio”. Working paper, Analysis Economic Department of Universidad Complutense.

Benito, S (2004). “Análisis Factorial en el Mercado Español de Deuda Pública”. Working paper, nº 001. Analysis Economic Deparment of the Universidad Nacional de Educación a Distancia (UNED).

Domínguez, E and A. Novales (2000). “Testing the Expectations Hypothesis in Eurodeposits”. Journal of International Money and Finance, 19, 713-736.

Elton, E. J., M. J. Gruber and B. Michaely (1990). “The Structure of Spot Rates and Immunization”. The Journal of Finance, 45, 629-641.

Engsted, T. and C. Tanggaard (1994). “Cointegration and the US term structure”. Journal of Banking and Finance, 18, 167-181.

Gento, P. (2001). “Un modelo Simplificado para el Cálculo del Valor en Riesgo en Carteras de Renta Fija”. Working Paper, Facultad de derercho y Ciencias Sociales de la Universidad de Castilla la Mancha.

Hall, A. D., H. M. Anderson and Clive W. J. Granger (1992). “A cointegration Analysis of Treasury Bill Yields”. The Review of Economics and Stadistics, 74, 116-126.

Litterman, R. and J. Scheinkman (1991). “Common Factors Affecting Bond Returns”. The Journal of Fixed Income, jun, 54-61.

Navarro, E. and J. Nave (1997). “A Two-Factor Duration Model for Interest Rate Risk Management”. Investigaciones Económicas, 21, 55-74.

Stock, J. H., and W. Watson (1988). “Testing for Common Trends”. Journal of the American Statistical Assotiation, 83, 1097-1107.

Deposited On:28 Apr 2008
Last Modified:06 Feb 2014 07:56

Repository Staff Only: item control page