Lecture5(1).ppt

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1、Class5TermStructureofInterestRatesFIXEDINCOMESECURITIESOutlineTermstructureofinterestratesandtheyieldcurveShapesofthetermstructureDynamicsofthetermstructurePrincipalcomponentsanalysis(PCA)TheoriesofthetermstructureTermstructureofvolatilityTermStructureof

2、InterestRatesandtheYieldCurveThetermstructureofinterestratesistheseriesofdefault-freezero-couponinterestratesorderedbytermtomaturityatagiventime.Thenatureofinterestratemovementsdeterminestheshapeofthetermstructureandhowitchangesovertime.Theyieldcurveisth

3、e“termstructure”ofyieldstomaturity.Thereisalsoatermstructureofforwardrates.Thereisatermstructureandayieldcurveforbondsineachmarketsectorandforeachriskclasswithineachsector.TermStructureShapesQuasi-flatIncreasingDecreasingHumpedQuasi-FlatQuasi-FlatIncreas

4、ingIncreasingDecreasingDecreasing(orinverted)Humped(1)Humped(decreasingthenincreasing)Humped(2)Humped(increasingthendecreasing)DynamicsoftheTermStructureThetermstructureofinterestrateschangesinresponsetoEconomy-wideshocksMarket-specificeventsExampleOn10/

5、31/01,Treasuryannouncesthattherewillnotbeanyfurtherissuanceof30-yearbonds.Priceofexisting30-yearbondsispushedupduetobuyingpressure.30-yearyieldispusheddown.Example–USYTMTermStructureStylizedFacts(1):MeanReversionMeanreversion:high(low)valuestendtobefollo

6、wedbylow(high)values.Example:10-yearswaprateversusDowChemical.StylizedFacts(2):CorrelationRateswithdifferentmaturitiesarehighlycorrelated:PositivelycorrelatedwithoneanotherNotperfectlycorrelated(andmorethanonefactorinvolved)Correlationdecreaseswithincrea

7、seinmaturityExample:France(1995-2000)StylizedFacts(3):EvolutionTheevolutionofthetermstructurecanbesplitintothreestandardmovements:Shiftmovements(changesinlevel),whichaccountfor70%to80%oftheobservedmovementsonaverage.Atwistmovement(changesinslope),whichac

8、countsfor15%to30%oftheobservedmovementsonaverage.Abutterflymovement(changesincurvature),whichaccountsfor1%to5%oftheobservedmovementsonaverage.Thatjust3factorsaccountformorethan90%ofthechangesinthetermstructureissurprising: