18 As referred to in Campbell et al. (1997), in a one-factor model setting, the Bin coefficients in a Gaussian model measure the sensitivity of the log of bond prices to changes in short-term interest rate. This is different from duration, as it does not correspond to the impact on bond prices of changes in the respective yields, but instead in the short rate.

19 If p, = 1 interest rates are non-stationary. In that case, the limiting value of the instantaneous forward yn,t = -(.Pn,t/n) is time-varying but assumes infinite values. Effectively, (1 — q>n)/(1 — <Pi) = n in this case. Thus, the expression for the instantaneous forward will be given by:

Accordingly, even if Xi < 0, the forward rate curve may start by increasing, but at the longer end it will decrease infinitely. Obviously, if X, > 0, the forward rate curve will decrease monotonously.

premium in these models will be:

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