European University Institute Library

Bond pricing and yield-curve modelling, a structural approach, Riccardo Rebonato

eng

Includes bibliographical references (pages 725-736) and index

illustrations

index present

non fiction

Bond pricing and yield-curve modelling

bibliography

990373862

Riccardo Rebonato

a structural approach

In this book, well-known expert Riccardo Rebonato provides the theoretical foundations (no-arbitrage, convexity, expectations, risk premia) needed for the affine modeling of the government bond markets. He presents and critically discusses the wealth of empirical findings that have appeared in the literature of the last decade, and introduces the 'structural' models that are used by central banks, institutional investors, sovereign wealth funds, academics, and advanced practitioners to model the yield curve, to answer policy questions, to estimate the magnitude of the risk premium, to gauge market expectations, and to assess investment opportunities. Rebonato weaves precise theory with up-to-date empirical evidence to build, with the minimum mathematical sophistication required for the task, a critical understanding of what drives the government bond market.--, Provided by Publisher

Part I. The foundations -- What this book is about -- Definitions, notation and a few mathematical results -- Links among models, monetary policy and the macroeconomy -- Bonds: their risks and their compensations -- The risk factors in action -- Principal components: theory -- Principal components: empirical results -- Part II. The building blocks: a first look -- Expectations -- Convexity: a first look -- A preview: a first look at the Vasicek model -- Part III. The conditions of no-arbitrage -- No-arbitrage in discrete time -- No-arbitrage in continuous time -- No-arbitrage with state price deflators -- No-arbitrage conditions for real bonds -- Links with an economics-based description of rates -- Part IV. Solving the models -- Solving affine models: the Vasicek case -- First extensions -- A general pricing framework -- The shadow rate: dealing with a near-zero lower bound -- Part V. The value of convexity -- The value of convexity -- A model-independent approach to valuing convexity -- Convexity: empirical results -- Part VI. Excess returns -- Excess returns: setting the scene -- Risk premia, the market price of risk and expected excess returns -- Excess returns: empirical results -- Excess returns: the recent literature - I -- Excess returns: the recent literature - II -- Why is the slope a good predictor? -- The spanning problem revisited -- Part VII. What the models tell us -- The doubly mean-reverting Vasicek model -- Real yields, nominal yields and inflation: the D'amico-Kim-Wei model -- From snapshots to structural models: the Diebold-Rudebusch approach -- Principal components as state variables of affine models: the PCA affine approach -- Generalizations: the Adrian-Crump-Moench model -- An affine, stochastic-market-price-of-risk model -- Conclusions