An Econometric Model of the Term Structure of Interest-Rate Swap Yields

摘要: This article develops a multi-factor econometric model of the term structure interest-rate swap yields. The accommodates possibility counterparty default, and any differences in liquidities Treasury Swap markets. By parameterizing rates directly, we are able to compute model-based estimates defaultable zero-coupon bond implicit market without having specify priori dependence these on default hazard or recovery rates. time series analysis spreads between treasury yields reveals that both credit liquidity factors were important sources variation over past decade. ALTHOUGH PLAIN VANILLA FIXED-for-floating swaps comprise major segment fixed-income derivative market, notably few models for pricing have been developed literature. Perhaps primary reasons this are: (i) contracts embody risk hence equilibrium arbitrage-free default-free government markets not directly applicable market; (ii) empirical modeling event underlying bonds has met with limited success at explaining timeseries properties spreads; (iii) likely depend other such as related events. Also, until recently, data widely available. In develop multifactor U.S. fixedfor-floating many institutional features Specifically, using results Duffie Singleton (1996), show fixed payment rate swap, assuming floating is London Interbank Offering Rate (LIBOR), can be expressed terms present values net cash flows contract