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Bayesian Inference Applied to Dynamic Nelson-Siegel Model with Stochastic Volatility

Brazilian Review of Econometrics

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Title Bayesian Inference Applied to Dynamic Nelson-Siegel Model with Stochastic Volatility
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Creator Caldeira, João F.; Departamento de Economia-UFRGS
Laurini, Márcio P.; IBMEC-RJ
Portugal, Marcelo S.; Programa de Pós-Graduação em Economia-UFRGS
 
Subject Term structure of interest rates; stochastic volatility; MCMC; factor models
C53; E43; G17
Estrutura a termo da taxa de juros; volatilidade estocástica; MCMC; modelos de fatores
C53; E43; G17
 
Description In this article we propose to estimate a dynamic model for the term structure of interest rates considering two alternative specifications of the Nelson and Siegel (1987) model, generalizing several models found in literature. At first, we consider the weights of factors time-varying with conditional heteroskedasticity using a stochastic volatility model with common factors. In the second case, we consider a model where the latent factors individually follow autoregressive processes with stochastic volatility, including the possibility of leverage effects. The so-called volatility factorsseek to capture the uncertainty over time associated with the level, slope and curvature of the yield curve. The estimation is performed using Bayesian inference using Monte Carlo Markov Chain methods. The results for the term structure of DI futures and U.S. Treasuries used in this studyshow that the volatility factors are highly persistent, and also indicate that the use of stochastic volatility lead to better in-sample fits to the observed yield curve.
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Publisher Sociedade Brasileira de Econometria
 
Contributor —
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Date 2010-01-01
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/3502
10.12660/bre.v30n12010.3502
 
Source Brazilian Review of Econometrics; Vol 30, No 1 (2010); 123-161
Brazilian Review of Econometrics; Vol 30, No 1 (2010); 123-161
1980-2447
 
Language eng
 
Relation http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/3502/2214