A Dynamic Bond Pricing Model based on Factors with Structural Changes  

Oleh:

Kim, Jun-Seong ; Jun, Chi-Hyuck

Jenis: Article from Proceeding
Dalam koleksi: The 14th Asia Pacific Industrial Engineering and Management Systems Conference (APIEMS), 3-6 December 2013 Cebu, Philippines, page 1-13.
Topik: Bayesian inference; Change-points; Differential evolution Markov chain Monte Carlo; Regime switch; Stochastic discount factor
Fulltext: 1145a.pdf (4.22MB)

Isi artikel

In this paper we develop a dynamic yield model of zero-coupon bonds by incorporating comovement factors and structural changes. In our model, the parameters in the dynamics of the factor evolution, in the model of the market price of factor risks, and in the process of the stochastic discount factor vary according to structural regimes which have unknown break dates. We improve the recent developments to model US bond term structure data by treating break dates as a variable, using a differential evolution MCMC method, and employing two global comovement factors and one latent variable. We evaluate the proposed model on the basis of information about the number and the timing of structural changes using the marginal likelihood obtained from the Bridge sampling.

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