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Beyond single-factor affine term structure models

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URI: https://hdl.handle.net/10016/7500
ISSN: 1568-4636
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Beyond Single-Factor Affine.pdf (802.55 KB)
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2004-10
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Oxford University Press
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Abstract
This article proposes a new approach to testing for the hypothesis of a single priced risk factor driving the term structure of interest rates. The method does not rely on any parametric specification of the state variable dynamics or the market price of risk. It simply exploits the constraint imposed by the no-arbitrage condition on instantaneous expected bond returns. In order to achieve our goal, we develop a Kolmogorov-Smirnov test and apply it to data on Treasury bills and bonds for both the United States and Spain. We find that the single risk factor hypothesis cannot be rejected for either dataset.
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Bond markets, Risk assessment, Estimating techniques, Models, Studies
Bibliographic citation
Journal of Financial Econometrics, 2004, 2, 4. p. 565-591
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