Journal of Finance Vol. 52 No. 4 1997
An Econometric Model of the Term Structure of Interest-Rate Swap Yields.
Abstract
This article develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, the authors are able to compute model-based estimates of the defaultable zero-coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero-coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade.
- Volume
- 52
- Issue
- 4
- Pages
- 1287-1321
- Sources
- bibtex:phds-export.bib