The structure of spot rates and immunizationSome further results
- Nave Pineda, Juan M.
- Navarro Arribas, Eliseo
ISSN: 1435-5469
Year of publication: 2001
Volume: 3
Issue: 4
Pages: 273-294
Type: Article
More publications in: Spanish economic review
Abstract
Abstract. This paper estimates and tests a two-factor model of the term structure of interest rates based on the methodology developed by Elton, Gruber and Michaelly (1990) in an APT context. The model is then enlarged to allow its use for interest rate risk measurement through a duration vector. The results of the model using in-sample data are consistent with those obtained by Principal Components Analysis to explain the term structure behaviour. Finally, the model is tested using out-of-sample data, showing its superiority over a competing model based on the traditional Macaulay's duration.