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

Factor loadings 1 factor model
Factor loadings 2 factor model
1
1
b(τ)/τ
0.5
b(τ)/τ
0.5
f 1
f 1
f 2
0
0
0 5 10 0 5 10
Maturity τ (year)
Maturity τ (year)
Factor loadings 3 factor model
1
f 1
b(τ)/τ
0.5
f 2
f 3
0
0 5 10
Maturity τ (year)
Figure 5: Estimated term structure factor loadings (1994:Q4-2005:Q2)
200
0
Fitting error bank 1 deposit rate (bp)
1 factor model
2 factor model
3 factor model
200
0
Fitting error bank 2 deposit rate (bp)
-200
1996 1998 2000 2002 2004
-200
1996 1998 2000 2002 2004
200
Fitting error bank 3 deposit rate (bp)
200
Fitting error bank 4 deposit rate (bp)
0
0
-200
1996 1998 2000 2002 2004
-200
1996 1998 2000 2002 2004
200
Fitting error bank 5 deposit rate (bp)
200
Fitting error bank 6 deposit rate (bp)
0
0
-200
1996 1998 2000 2002 2004
-200
1996 1998 2000 2002 2004
200
Fitting error bank 7 deposit rate (bp)
200
Fitting error bank 8 deposit rate (bp)
0
0
-200
1996 1998 2000 2002 2004
-200
1996 1998 2000 2002 2004
Figure 6: Comparison model …t errors of deposit rate time series of 8 banks considered (1994:Q4-
2005:Q2)
30