Discrete-Time Affine Term Structure Models: An ARCH Formulation

@inproceedings{Carta2009DiscreteTimeAT,
  title={Discrete-Time Affine Term Structure Models: An ARCH Formulation},
  author={Alessandro Carta and Dean Fantazzini and Mario Maggi},
  year={2009}
}
Discrete-time Affine Term Structure Models can be expressed in AR(1)- ARCH form, but it is not possible to get a non-negative variance equation only by restricting the parameters. In this paper we use a distribution assumption in order to assure the variance to be non-negative. We present a complete formulation for one-factor and multi-factor models with Inverse Gaussian conditional innovations distribution. Moreover, we derive the log-likelihood functions and implement a two-factor empirical… CONTINUE READING

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