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1 In the setting of ''affine'' jump-diffusion state processes, this paper provides an analytical treatment of a class of transforms, including various Laplace and Fourier transforms as special cases, that allow an analytical treatment of a range of valuation and econometric problems. Example applications include fixed-income pricing models, with a role for(More)
This article presents convenient reduced-form models of the valuation of contingent claims subject to default risk, focusing on applications to the term structure of interest rates for corporate or sovereign bonds. Examples include the valuation of a credit-spread option. This article presents a new approach to modeling term structures of bonds and other(More)
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional " expectations theory, " we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and(More)
This paper explores the nature of default arrival and recovery implicit in the term structures of sovereign CDS spreads. We argue that term structures of spreads reveal not only the arrival rates of credit events (λ Q), but also the loss rates given credit events. Applying our framework to Mexico, Turkey, and Korea, we show that a single-factor model with λ(More)
extensive discussions; Andrew Ang, Mark Ferguson, and Yael Hochberg for their thoughtful and careful research assistance, three referees for their constructive comments, and the Financial Research Initiative and Gifford Fong Associates Fund of the Graduate School of Business at Stanford University for financial support.
This paper quantifies how variation in real economic activity and inflation in the U.S. influenced the market prices of level, slope, and curvature risks in U.S. Treasury markets. We develop a novel arbitrage-free dynamic term structure model in which bond investment decisions are influenced by real output and inflation risks that are unspanned by(More)
In any canonical Gaussian dynamic term structure model (GDTSM), the conditional forecasts of the pricing factors are invariant to the imposition of no-arbitrage restrictions. This invariance is maintained even in the presence of a variety of restrictions on the factor structure of bond yields. To establish these results, we develop a novel canonical GDTSM(More)
This paper explores the impact of investor flows and financial market conditions on returns in crude-oil futures markets. I argue that informational frictions and the associated speculative activity may induce prices to drift away from " fundamental " values, and may result in booms and busts in prices. Particular attention is given to the interplay between(More)
This paper develops and empirically implements an arbitrage-free, dynamic term structure model with " priced " factor and regime-shift risks. The risk factors are assumed to follow a discrete-time Gaussian process, and regime shifts are governed by a discrete-time Markov process with state-dependent transition probabilities. This model gives closed-form(More)