Validating Forecasts of the Joint Probability Density of Bond Yields:...-Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Research

Home -> Research -> Publications -> Content

作者	Alexei V. Egorov, Yongmiao Hong, Haitao Li
正文	Most existing empirical studies on affine term structure models (ATSMs) have mainly focused on in-sample goodness-of-fit of historical bond yields and ignored out-of-sample forecast of future bond yields. Using an omnibus nonparametric procedure for density forecast evaluation in a continuous-time framework, we provide probably the first comprehensive empirical analysis of the out-of-sample performance of ATSMs in forecasting the joint conditional probability density of bond yields. We find that although the random walk models tend to have better forecasts for the conditional mean dynamics of bond yields, some ATSMs provide better forecasts for the joint probability density of bond yields. However, all ATSMs considered are still overwhelmingly rejected by our tests and fail to provide satisfactory density forecasts. There exists room for further improving density forecasts for bond yields by extending ATSMs. r 2005 Elsevier B.V. All rights reserved.
JEL-Codes：	C4; C5; G1
关键词：	Density forecast; Affine term structure models; Probability integral transform; Financial risk management; Value at risk; Fixed-income portfolio management