Homepage Masthead
Liberty Street Economics Blog
E-mail alerts
RSS feeds
YouTube
FOLLOW US:

 
 
Staff Reports
Pricing the Term Structure with Linear Regressions
August 2008  Number 340
Revised August 2011
JEL classification: G10, G12
 

Authors: Tobias Adrian and Emanuel Moench

This paper shows how to price the term structure of interest rates using return regressions. The method allows instantaneous estimation of affine term structure models with a large number of pricing factors. Asymptotic standard errors that adjust for the generated regressor uncertainty are provided. We test for the number of factors needed to explain Treasury returns and allow for unspanned factors in the estimation. The method gives rise to small pricing errors compared to commonly reported specifications and can be used when zero-coupon yields are not observed.

 
Available only in PDFspacerPDFspacer44 pages / 567 kb