Modeling volatility and changes in the swap spread

In, Francis, Brown, Rob and Fang, Victor 2003, Modeling volatility and changes in the swap spread, International review of financial analysis, vol. 12, no. 5, pp. 545-561.

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Title Modeling volatility and changes in the swap spread
Author(s) In, Francis
Brown, Rob
Fang, Victor
Journal name International review of financial analysis
Volume number 12
Issue number 5
Start page 545
End page 561
Total pages 17
Publisher Elsevier Science
Place of publication Amsterdam, The Netherlands
Publication date 2003
ISSN 1057-5219
1873-8079
Keyword(s) U.S. swap spread
volatility
EGARCH
Multivariate
Summary We investigate the determinants of changes in U.S. interest rate swap spreads using a model that explicitly allows for volatility interactions between swaps of different terms to maturity. Changes in the swap spread are found to be positively related to interest rate volatility, to changes in the default risk premium in the corporate bond market, and to changes in the liquidity premium for government securities. Swap spread changes are negatively related to changes in the level of interest rates and changes in the slope of the term structure. We also find that there is a strong and significant volatility interaction among spreads for swaps of different maturities and that the process for the conditional variance of the spread is highly persistent across all maturities.
Language eng
Field of Research 159999 Commerce, Management, Tourism and Services not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2003, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30042554

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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