In the Svensson (1994) model of the term structure of interest rates Ot 2t r(t)= Bor+B₁ (1-e¯²)/λ₁t+ ß₂, (((1-e¯)/λ,t)-e-d₁²) +B3, (((1-e¹¹)/2₂,²)-e-¹₂,²) 3t Where rt (T) is the interest rate at time t of maturity 7 Bot, B1, B2t and B3t are estimated parameters At and A2t are decay parameters. Explain what each of the four terms in the model are meant to measure.
In the Svensson (1994) model of the term structure of interest rates Ot 2t r(t)= Bor+B₁ (1-e¯²)/λ₁t+ ß₂, (((1-e¯)/λ,t)-e-d₁²) +B3, (((1-e¹¹)/2₂,²)-e-¹₂,²) 3t Where rt (T) is the interest rate at time t of maturity 7 Bot, B1, B2t and B3t are estimated parameters At and A2t are decay parameters. Explain what each of the four terms in the model are meant to measure.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![In the Svensson (1994) model of the term structure of interest rates
λ
Ot
1t
r(t) = Bo,+B₁, (1-e¯)/ 2₁t+ ß₂, (((1-e¯)/2,t) -e¯¹²)
+ B₂, (((-e-¹₁₁²) / 2₂, t) -e-¹¹²²³)
е
Where It (T) is the interest rate at time t of maturity 7
Bot, B1, B2t and B3t are estimated parameters
At and A2t are decay parameters.
Explain what each of the four terms in the model are meant to measure.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F55697e84-7448-420f-9e66-9b7690c6a89d%2F7a12a1ca-6d14-47eb-af2f-28f1e0ce8cb2%2Fep7j1a9_processed.png&w=3840&q=75)
Transcribed Image Text:In the Svensson (1994) model of the term structure of interest rates
λ
Ot
1t
r(t) = Bo,+B₁, (1-e¯)/ 2₁t+ ß₂, (((1-e¯)/2,t) -e¯¹²)
+ B₂, (((-e-¹₁₁²) / 2₂, t) -e-¹¹²²³)
е
Where It (T) is the interest rate at time t of maturity 7
Bot, B1, B2t and B3t are estimated parameters
At and A2t are decay parameters.
Explain what each of the four terms in the model are meant to measure.
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