European Parliament Library

Volatility and Jump Risk Premia in Emerging Market Bonds, John Matovu

Abstract
There is strong evidence that interest rates and bond yield movements exhibit both stochastic volatility and unanticipated jumps. The presence of frequent jumps makes it natural to ask whether there is a premium for jump risk embedded in observed bond yields. This paper identifies a class of jump-diffusion models that are successful in approximating the term structure of interest rates of emerging markets. The parameters of the term structure of interest rates are reconciled with the associated bond yields by estimating the volatility and jump risk premia in highly volatile markets. Using the simulated method of moments (SMM), results suggest that all variants of models which do not take into account stochastic volatility and unanticipated jumps cannot generate the non-normalities consistent with the observed interest rates. Jumps occur (8,10) times a year in Argentina and Brazil, respectively. The size and variance of these jumps is also of statistical significance
Table Of Contents
Contents; I. Introduction; II. Model Specification; III. Econometric Approach; IV. Data Sources; V. Empirical Results; A. SNP Model for Interest Rates; B. Simple Model with Constant Volatility (CIR); C. Model with Stochastic Volatility (SV); D. Model with Varying Volatility and Jumps (SVJ); E. Volatility and Jump Risk Premia; VI. Conclusion; Appendix; 1. SNP Auxilliary Model; References; Tables; 1. SNP Density Estimation; 2. EMM Estimates of the Jump Diffusion Stochastic Model for Argentina; 3. EMM Estimates of the Jump Diffusion Stochastic Model for Brazil; 4. Volatility and Jump Risk Premia
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (27 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781451911893

Library Locations

  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU
    Borrow
  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
    Borrow
  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
    Borrow