Professor Damir Filipovic
Swiss Finance Institute
Swissquote Chair in Quantitative Finance
Head of the Swiss Finance Institute @ EPFL
NOTE: Room MR2, Centre for Mathematical Sciences, Cambridge University
Linear-Rational Term Structure Models
We introduce the class of linear-rational term structure models, where the state price density is modeled such that bond prices become linear-rational functions of the current state. This class is highly tractable with several distinct advantages:
i) ensures non-negative interest rates,
ii) easily accommodates unspanned factors affecting volatility and risk premia, and
iii) admits analytical solutions to swaptions.
For comparison, affine term structure models can match either i) or ii), but not both simultaneously, and never iii). A parsimonious specification of the model with three term structure factors and one, or possibly two, unspanned factors has a very good fit to both interest rate swaps and swaptions since 1997. In particular, the model captures well the dynamics of the term structure and volatility during the recent period of near-zero interest rates.
Join Damir Filipovic for wine and canapes in the Centre for Mathematical Sciences after the seminar
Damir Filipovic holds the Swissquote Chair in Quantitative Finance at the Ecole Polytechnique Fédérale de Lausanne (EPFL) and a Swiss Finance Institute Senior Chair. He also acts as head of the Swiss Finance Institute @ EPFL.
He holds a Ph.D. in mathematics from ETH Zurich and has been a faculty member of the University of Vienna, the University of Munich and Princeton University. He also worked for the Swiss Federal Office of Private Insurance as co-developer of the Swiss Solvency Test.
He is on the editorial board of several academic journals. His research focus is in quantitative finance and risk management. His papers have been published in a variety of academic journals including the Journal of Financial Economics, Mathematical Finance, Finance and Stochastics, and the Annals of Applied Probability. He is the author of a textbook titled Term-Structure Models.
The seminar is sponsored by Cantab Capital Partners.
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