Correlations between the Market Price of Interest Rate Risk and Bond Yields

Research output: Contribution to journalArticle

Abstract

This paper examines empirical properties of the market price of interest rate risk, focusing on the relation between the price and interest rates. We briefly summarize how the market price of risk is estimated, and introduce the positive slope model to explain our empirical observation. The market price of risk is estimated for the U.S. Treasury market, 1970-2014, using the Hull–White model. We test the correlation between the market price of interest rate risk and bond yields. The results are that the yield change and term spreads are significantly correlated with the market price of risk, but the initial yields are not correlated with that. These results are theoretically interpreted by a mathematical model, and serve as a valuable reference for risk management as well as for study of financial policy.
LanguageEnglish
Pages208
Number of pages217
JournalJournal of Reviews on Global Economics
Volume6
DOIs
StatePublished - 2017 Jun 1

Fingerprint

Interest rate risk
Bond yields
Market price
Market price of risk
Risk management
Interest rates
Term spread
Mathematical model
Financial policy

Keywords

  • Potential future exposure
  • Financial policy-making
  • Market price of risk
  • Interest-rate-risk management

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Correlations between the Market Price of Interest Rate Risk and Bond Yields. / Yasuoka, Takashi.

In: Journal of Reviews on Global Economics, Vol. 6, 01.06.2017, p. 208.

Research output: Contribution to journalArticle

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