Premium
Identification of Maximal Affine Term Structure Models
Author(s) -
COLLINDUFRESNE PIERRE,
GOLDSTEIN ROBERT S.,
JONES CHRISTOPHER S.
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01331.x
Subject(s) - representation (politics) , affine transformation , term (time) , mathematics , quadratic equation , singleton , infinitesimal , interpretation (philosophy) , state vector , state (computer science) , identification (biology) , econometrics , computer science , algorithm , pure mathematics , mathematical analysis , pregnancy , physics , geometry , botany , classical mechanics , quantum mechanics , politics , biology , political science , law , genetics , programming language
Building on Duffie and Kan (1996), we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations. Because these variables possess unambiguous economic interpretations, they generate a representation that is globally identifiable . Further, this representation has more identifiable parameters than the “maximal” model of Dai and Singleton (2000). We implement this new representation for select three‐factor models and find that model‐independent estimates for the state vector can be estimated directly from yield curve data, which present advantages for the estimation and interpretation of multifactor models.