A multi-factor model for the valuation and risk management of ...

0.06
0.055
Data
1 factor model
2 factor model
3 factor model
Fit average yield curve
0.05
0.045
0.04
0.035
0.03
0 1 2 3 4 5 6 7 8 9 10
Maturity τ (year)
Figure 3: Comparison model-implied …t average yields (1994:Q4-2005:Q2)
200
Fitting error 6m y ield (bp)
100
-100
0
-200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
200
Fitting error 5y r y ield (bp)
100
-100
0
-200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
200
Fitting error 10y r y ield (bp)
100
-100
0
-200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Figure 4: Comparison …tting errors for each yield time series (1994:Q4-2005:Q2)
29