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A Semiparametric Two-Factor Term Structure Model.

Abstract:

This article proposes a semiparametric two-factor term structure model based on a consol rate and the spread between a short rate and the consol rate. The diffusion functions in both the consol rate and spread processes are nonparametrically specified so that the model allows for maximal flexibility of diffusion functions in fitting into data. The drift function of the spread process is specified as a mean-reverting function, while the drift function of the consol rate process is left unrestr...

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Journal:
Journal of Financial Econometrics
Volume:
4
Publication date:
2006-01-01
URN:
uuid:749c45e9-b555-4ef5-b53f-817cbd67c2e9
Local pid:
oai:economics.ouls.ox.ac.uk:10977
Language:
English

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