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

Simple item page
dc.citation.firstpage387
dc.citation.issueNumber494
dc.citation.journalTitleJournal of the American Statistical Association
dc.citation.lastpage395
dc.citation.volumeNumber106
dc.contributor.authorCruz-Marcelo, Alejandro
dc.contributor.authorEnsor, Katherine B.
dc.contributor.authorRosner, Gary L.
dc.date.accessioned2020-09-11T01:24:29Z
dc.date.available2020-09-11T01:24:29Z
dc.date.issued2011
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.
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.
dc.identifier.doihttps://doi.org/10.1198/jasa.2011.ap09764
dc.identifier.urihttps://hdl.handle.net/1911/109329
dc.language.isoeng
dc.publisherTaylor & Francis
dc.rightsThis is an author's peer-reviewed final manuscript, as accepted by the publisher. The published article is copyrighted by Taylor & Francis.
dc.subject.keywordCredit spread
dc.subject.keywordDirichlet process mixture
dc.subject.keywordHierarchical model
dc.subject.keywordNonparametric Bayes
dc.subject.keywordTreasury bond
dc.subject.keywordYield curve
dc.titleEstimating the Term Structure With a Semiparametric Bayesian Hierarchical Model: An Application to Corporate Bonds
dc.typeJournal article
dc.type.dcmiText
dc.type.publicationpost-print
Files
Original bundle
Now showing 1 - 1 of 1
Thumbnail Image
Name:
SSRN-id1521323.pdf
Size:
312.3 KB
Format:
Adobe Portable Document Format
Description:
Download
Collections
Center for Computational Finance and Economic Systems (CoFES)