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

Takashi Yasuoka

    Research output: Contribution to journalArticle

    2 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)208
    Number of pages217
    JournalJournal of Reviews on Global Economics
    Volume6
    DOIs
    Publication statusPublished - 2017 Jun 1

    Fingerprint

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

    @article{d6702749e3654c6eb792220a66d46a6d,
    title = "Correlations between the Market Price of Interest Rate Risk and Bond Yields",
    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.",
    keywords = "Potential future exposure, Financial policy-making, Market price of risk, Interest-rate-risk management",
    author = "Takashi Yasuoka",
    year = "2017",
    month = "6",
    day = "1",
    doi = "https://doi.org/10.6000/1929-7092.2017.06.19",
    language = "English",
    volume = "6",
    pages = "208",
    journal = "Journal of Reviews on Global Economics",
    issn = "1929-7092",
    publisher = "Lifescience Global",

    }

    TY - JOUR

    T1 - Correlations between the Market Price of Interest Rate Risk and Bond Yields

    AU - Yasuoka, Takashi

    PY - 2017/6/1

    Y1 - 2017/6/1

    N2 - 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.

    AB - 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.

    KW - Potential future exposure

    KW - Financial policy-making

    KW - Market price of risk

    KW - Interest-rate-risk management

    U2 - https://doi.org/10.6000/1929-7092.2017.06.19

    DO - https://doi.org/10.6000/1929-7092.2017.06.19

    M3 - Article

    VL - 6

    SP - 208

    JO - Journal of Reviews on Global Economics

    JF - Journal of Reviews on Global Economics

    SN - 1929-7092

    ER -