Time：2019-04-23, Tuesday, 12:00-13:00

Venue：A-505

Title： A Gaussian Affine Term Structure Model of Interest Rates and Credit Spreads

Speaker：Doctor. Zhiping Zhou

Abstract：

We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial market factors consisting of funding liquidity and market volatility. We show that financial market factors have limited effects on the Treasury yield curve but substantial impacts on the credit spread term structure. In particular, negative liquidity shocks widen credit spreads, and this effect is more pronounced for short-term corporate bonds. We also find that out-of-sample forecasts for credit spreads improve when financial market factors are incorporated and when no-arbitrage restrictions are imposed. We also propose a minimum-chi-square method for estimating the term structure models of interest rate and credit spreads, which is more efficient and accurate than the widespread maximum-likelihood estimation.

Introduction：

Zhiping Zhou holds a Ph.D. in Finance from Bocconi University. His curriculum lists periods of employment with the Bank of England as a Ph.D. intern, the Wuhan University as an assistant professor, and the Ping An Annuity as a macro strategist. His research interests are in macro finance and empirical asset pricing, particularly in the term structure of corporate credit risk and macroeconomic dynamics. His teaching has spanned derivative pricing, fixed income securities, and financial econometrics. During the past years, he also served as a referee for several international journals, such as Quantitative Finance, The European Journal of Finance, The International Journal of Forecasting, Journal of Economic Dynamics and Control, and Journal of Banking and Finance.