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    Modeling a Two-currency Affine Arbitrage-free Nelson-Siegel Term Structure Model

    Yu, Yi (2012) Modeling a Two-currency Affine Arbitrage-free Nelson-Siegel Term Structure Model. Masters thesis, National University of Ireland Maynooth.

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    This thesis contains two papers. In the first paper, we provide a general overview of the most popular term structure of interest rate models. In order to understand different features of each model, we classify by means of general characteristics, from single-factor to multi-factor and forward rate based models. Each of these existing term structure models has its own advantages and disadvantages. We also highlight the recently advocated models in the literature: the Nelson-Siegel model, the affine and the quadratic arbitrage-free model. In the second paper we extend the affine arbitrage-free Nelson-Siegel model to a two-currency (3+1) factor structure model that incorporates the properties of interest rate term structure and foreign exchange rates simultaneously within one arbitrage-free framework by decomposing the pricing kernel into two independent portions: one portion contains three factors that model the affine Nelson-Siegel term structure of interest rate, the other portion contains one factor that captures the effect of the currency movement, which is independent of the term structure.

    Item Type: Thesis (Masters)
    Keywords: Nelson-Siegel Term Structure Model;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 3991
    Depositing User: IR eTheses
    Date Deposited: 21 Nov 2012 16:15
      Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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