10384 15620071151397 UDC Empirical Researches on Pricing of Corporate Bonds with Macro Factors 2010 4
Duffee 1999 AAA Vasicek RMSE RMSE
Abstract In order to investigate whether adding macro factors into the reduced form model can improve its pricing performance on corporate bond, we follow the framework of Duffee (1999) to conduct an empirical study on exchange listed Treasury bond and AAA rated corporate bond, based on a reduced form model with macro factors. In our model, we employ the linear Kalman filtering methodology and assume macro factors follow Vasicek process. We also include a dummy variable to capture the change of liquidity in exchange listed Treasury bond market. Meanwhile, we introduce a reduced form model without macro factors in our study to make a comparison. Through the likelihood ratio test and comparison of RMSE, we can test if we should use the reduced form model with macro factors. The empirical study results show that pricing performance of the reduced form model with macro factors is better than that of the reduced form model without macro factors. Compared with the model without macro factors, the model without macro factors passes the likelihood ratio test when pricing Treasury bond and corporate bond. The RMSE results also conclude that the model with macro factors performs better than the model without macro factors in prediction. Meanwhile, our research shows that the default intensity is negatively related to macro factors and macro factors have positive risk premium. All these results point to a conclusion that we should add macro factors into the reduced form model to improve its pricing performance on corporate bond. Keywords: Macro factors; The reduced form model; The linear Kalman filtering
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Contents CHAPET 1 INTRODUCTION...1 SECTION 1 BACKGROUND AND MOTIVATION...1 SECTION 2 DEVELOPMENTS AND CURRENT SITUATION OF CORPORATE BOND...3 1. Connotation...3 2. Developments of Corporate Bonds...3 3. Current Situaion of Corporate Bonds...5 SECTION 3 THE FRAMEWORK OF THE PAPER...7 CHAPTER 2 LITERATURE REVIEW...8 SECTION 1 RESEARCH ABROAD...8 1. Structure Model...8 2. Reduced Form Model...9 3. Liner Regression Approach...9 4. Reduced Form Model with Marco Factors...10 SECTION 2 RESEARCH AT HOME...10 CHAPTER 3 RESEARCH METHODS...12 SECTION 1 DESCRIPTION OF MODELS...12 SECTION 2 ESTIMATION METHOD...15 1. Kalman Filtering in Brief...15 2. Two-step Estimation Methods...17 3. Kalman Filtering of CIR Model...17 4. The Specification of Vasicek Model...19 5. Dummy Variables...19 CHAPTER 4 EMPIRICAL ANALYSIS...21 SECTION 1 DATA AND DESCRIPTIVE STATISTICS...21 1. Bond Data...21 2. Macro Data...26
3. Descriptive Statistics...27 SECTION 2 YIELD-ONLY MODEL...28 SECTION 3 YIELD-MACRO MODEL...31 SECTION 4 COMPARISONS OF YIELD-ONLY AND YIELD-MACRO...34 1. The Comparison of Treasury Bond Part...34 2. The Comparison of Corporate Bond Part...35 CHAPTER 5 CONCLUSION...37 SECTION 1 CONCLUSION...37 SECTION 2 FURTHER RESEARCH...38 REFERENCE...39 APPRECIATION...41
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2 AsianBondsOnline 2009 9 GDP 8.4% 61.6% 7 2 AsianBondsOnline 2
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