Estimating the Term Structure With a Semiparametric Bayesian Hierarchical Model: An Application to Corporate Bonds

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dc.citation.firstpage387en_US
dc.citation.issueNumber494en_US
dc.citation.journalTitleJournal of the American Statistical Associationen_US
dc.citation.lastpage395en_US
dc.citation.volumeNumber106en_US
dc.contributor.authorCruz-Marcelo, Alejandroen_US
dc.contributor.authorEnsor, Katherine B.en_US
dc.contributor.authorRosner, Gary L.en_US
dc.date.accessioned2020-09-11T01:24:29Zen_US
dc.date.available2020-09-11T01:24:29Zen_US
dc.date.issued2011en_US
dc.description.abstractThe term structure of interest rates is used to price defaultable bonds and credit derivatives, as well as to infer the quality of bonds for risk management purposes. We introduce a model that jointly estimates term structures by means of a Bayesian hierarchical model with a prior probability model based on Dirichlet process mixtures. The modeling methodology borrows strength across term structures for purposes of estimation. The main advantage of our framework is its ability to produce reliable estimators at the company level even when there are only a few bonds per company. After describing the proposed model, we discuss an empirical application in which the term structure of 197 individual companies is estimated. The sample of 197 consists of 143 companies with only one or two bonds. In-sample and out-of-sample tests are used to quantify the improvement in accuracy that results from approximating the term structure of corporate bonds with estimators by company rather than by credit rating, the latter being a popular choice in the financial literature. A complete description of a Markov chain Monte Carlo (MCMC) scheme for the proposed model is available as Supplementary Material.en_US
dc.identifier.citationCruz-Marcelo, Alejandro, Ensor, Katherine B. and Rosner, Gary L.. "Estimating the Term Structure With a Semiparametric Bayesian Hierarchical Model: An Application to Corporate Bonds." <i>Journal of the American Statistical Association,</i> 106, no. 494 (2011) Taylor & Francis: 387-395. https://doi.org/10.1198/jasa.2011.ap09764.en_US
dc.identifier.doihttps://doi.org/10.1198/jasa.2011.ap09764en_US
dc.identifier.urihttps://hdl.handle.net/1911/109329en_US
dc.language.isoengen_US
dc.publisherTaylor & Francisen_US
dc.rightsThis is an author's peer-reviewed final manuscript, as accepted by the publisher. The published article is copyrighted by Taylor & Francis.en_US
dc.subject.keywordCredit spreaden_US
dc.subject.keywordDirichlet process mixtureen_US
dc.subject.keywordHierarchical modelen_US
dc.subject.keywordNonparametric Bayesen_US
dc.subject.keywordTreasury bonden_US
dc.subject.keywordYield curveen_US
dc.titleEstimating the Term Structure With a Semiparametric Bayesian Hierarchical Model: An Application to Corporate Bondsen_US
dc.typeJournal articleen_US
dc.type.dcmiTexten_US
dc.type.publicationpost-printen_US
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