Backus, D., S. Foresi, and S. Zin. \Arbitrage Opportunities in ArbitrageFree Models of Bond Pricing." Manuscript, April 16, 1996. To appear in Journal of Business and Economic Statistics. Home/Search Document Details and Download
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A Nonparametric Model of Term Structure Dynamics and the Market.. - Stanton (1998) (5 citations) (Correct)
....models are in common use by practitioners, they often imply counterfactual behavior for the future behavior of interest rates. In addition, to retain their exact fit to the term structure they need to be re estimated each period, undermining the assumptions under which they are valid (see Backus, Foresi and Zin (1995) and Canabarro (1995) This article concentrates only on time homogeneous representations. A. Parametric Models In estimating the functions and oe in equation (1) the usual approach is first to specify parametric forms for the functions and oe (as in the examples above) then to estimate ....
....parametric interest rate models do not even fit historical data well. Ait Sahalia (1996b) rejects . every parametric model of the spot rate [previously] proposed in the literature by comparing the marginal density implied by each model with that estimated from the data. The results of Backus, Foresi and Zin (1995) and Canabarro (1995) further show that misspecification of the underlying interest rate model can lead to serious pricing and hedging errors. To avoid misspecification, recent research has used nonparametric estimation techniques in order to avoid having to specify (arbitrary) functional forms ....
Backus, David K., Silverio Foresi, and Stanley E. Zin, 1995, Arbitrage opportunities in arbitrage-free models of bond pricing, Working paper, New York University.
Discrete-Time Models of Bond Pricing - Backus, Foresi, Telmer (1998) (2 citations) Self-citation (Foresi) (Correct)
....excess kurtosis for all maturities. Still, it provides a useful starting point for thinking about the role of jumps in pricing fixed income derivatives. In related work on currencies, we have found a Gram Charlier expansion to be a more tractable non normal distribution for pricing options; see Backus, Foresi, Li, and Wu (1998). Most of that work can be translated directly to fixed income. 8 Multifactor Models We turn now to multifactor models, in which bond yields are governed by the movements in two or more state variables. The motivation for such models should be clear from Section 4.4: single factor models cannot ....
....precise estimates of their values. We could use, for example, estimates of the conditional variance or unconditional higher moments of the short rate. None of the alternatives are easy, and none work very well. Interested readers might consult Chen and Scott (1993) Duffie and Singleton (1997) or Backus, Foresi, Mozumdar, and Wu (1998). The following models can be viewed as attempts to restrict the two factor affine model further, thereby simplifying the estimation process. Longstaff and Schwartz The Longstaff and Schwartz (1992) model is a special case of the two factor CIR model in which one of the risk parameters has been ....
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Backus, David, Silverio Foresi, and Stanley Zin, 1998, "Arbitrage opportunities in arbitrage-free models of bond pricing," Journal of Business and Economic Statistics 16, 13-26.
A General Computational Method for Calibration Based on.. - Lyuu (Correct)
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Backus, D., S. Foresi, and S. Zin. \Arbitrage Opportunities in ArbitrageFree Models of Bond Pricing." Manuscript, April 16, 1996. To appear in Journal of Business and Economic Statistics.
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