A factor risk model with reference returns for the US dollar and Japanese yen bond markets

Arbeitspapier

This paper develops a new methodology for simulating fixed-income return distributions. It is shown that a traditional factor risk model, when augmented with reference returns, is capable of generating visually consistent return distributions for a broad range of fixed income instruments such as government and nongovernment instruments in the US dollar and Japanese yen bond markets. The reference returns result from a regime-switching Nelson-Siegel yield curve model following Bernadell, Coche and Nyholm (2005). Empirical results are encouraging: simulated distributions exhibit most characteristics observed in the fixed income markets such as non-normal right-skewed distributions for short maturity instrument while instruments with longer maturity are closer to being normally distributed.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 641

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Forecasting Models; Simulation Methods ; Portfolio Choice; Investment Decisions ; International Financial Markets
• Subject: factor risk model ; Regime switching ; scenario analysis ; Portfolio-Management ; Risiko ; Anleihe ; Yen ; US-Dollar

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bernadell, Carlos ; Coche, Joachim ; Nyholm, Ken
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/153075
• Last update: 10.03.2025, 11:45 AM CET