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A Floating Currency Macro Term Structure Model

Lindeke, Niklas LU (2017) NEKP01 20171
Department of Economics
Abstract
During the last decade there has been many advances in the field of research focusing on term
structure models that include macroeconomic risks. The fact that such risks adds to the predictive
power of risk premia is evident. However, there is no such models that includes exchange rate
dynamics and accounts for these potentially latent effects on the yield curve.
This thesis presents a discussion on term structure models. A concept for pricing bonds on
the entire range of maturities. Specifically, we look at the family of term structure models called
macro-finance term structure models (MTSM), which takes the standard framework of the standard
term structure models and adds sources of macroeconomic risks. Our discussion focuses on... (More)
During the last decade there has been many advances in the field of research focusing on term
structure models that include macroeconomic risks. The fact that such risks adds to the predictive
power of risk premia is evident. However, there is no such models that includes exchange rate
dynamics and accounts for these potentially latent effects on the yield curve.
This thesis presents a discussion on term structure models. A concept for pricing bonds on
the entire range of maturities. Specifically, we look at the family of term structure models called
macro-finance term structure models (MTSM), which takes the standard framework of the standard
term structure models and adds sources of macroeconomic risks. Our discussion focuses on the role
of the exchange rate dynamics, motivating a formulation that can include it, and investigating to
see if it adds any information in describing the bond risk premium. Our vantage point comes from
that of the unspanned MTSM, and subsequently modifying it to accommodate for exchange rate
effects. We are able to present regression evidence supporting our idea of a latent exchange rate
effect in the bond term structure. (Less)
Popular Abstract
During the last decade there has been many advances in the field of research focusing on term
structure models that include macroeconomic risks. The fact that such risks adds to the predictive
power of risk premia is evident. However, there is no such models that includes exchange rate
dynamics and accounts for these potentially latent effects on the yield curve.
This thesis presents a discussion on term structure models. A concept for pricing bonds on
the entire range of maturities. Specifically, we look at the family of term structure models called
macro-finance term structure models (MTSM), which takes the standard framework of the standard
term structure models and adds sources of macroeconomic risks. Our discussion focuses on... (More)
During the last decade there has been many advances in the field of research focusing on term
structure models that include macroeconomic risks. The fact that such risks adds to the predictive
power of risk premia is evident. However, there is no such models that includes exchange rate
dynamics and accounts for these potentially latent effects on the yield curve.
This thesis presents a discussion on term structure models. A concept for pricing bonds on
the entire range of maturities. Specifically, we look at the family of term structure models called
macro-finance term structure models (MTSM), which takes the standard framework of the standard
term structure models and adds sources of macroeconomic risks. Our discussion focuses on the role
of the exchange rate dynamics, motivating a formulation that can include it, and investigating to
see if it adds any information in describing the bond risk premium. Our vantage point comes from
that of the unspanned MTSM, and subsequently modifying it to accommodate for exchange rate
effects. We are able to present regression evidence supporting our idea of a latent exchange rate
effect in the bond term structure. (Less)
Please use this url to cite or link to this publication:
author
Lindeke, Niklas LU
supervisor
organization
course
NEKP01 20171
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Macro-finance, term structure models, exchange rate risks
language
English
id
8913080
date added to LUP
2017-07-10 14:35:33
date last changed
2017-07-10 14:35:33
@misc{8913080,
  abstract     = {During the last decade there has been many advances in the field of research focusing on term
structure models that include macroeconomic risks. The fact that such risks adds to the predictive
power of risk premia is evident. However, there is no such models that includes exchange rate
dynamics and accounts for these potentially latent effects on the yield curve.
This thesis presents a discussion on term structure models. A concept for pricing bonds on
the entire range of maturities. Specifically, we look at the family of term structure models called
macro-finance term structure models (MTSM), which takes the standard framework of the standard
term structure models and adds sources of macroeconomic risks. Our discussion focuses on the role
of the exchange rate dynamics, motivating a formulation that can include it, and investigating to
see if it adds any information in describing the bond risk premium. Our vantage point comes from
that of the unspanned MTSM, and subsequently modifying it to accommodate for exchange rate
effects. We are able to present regression evidence supporting our idea of a latent exchange rate
effect in the bond term structure.},
  author       = {Lindeke, Niklas},
  keyword      = {Macro-finance,term structure models,exchange rate risks},
  language     = {eng},
  note         = {Student Paper},
  title        = {A Floating Currency Macro Term Structure Model},
  year         = {2017},
}