Generating Yield Curve Stress-Scenarios

Abstract : Several authors have proposed to combine movements in princi- pal components to generate scenarios of "large" historical changes in term structures, i.e. stress-scenarios. This approach, however, has at least two shortcommings. This paper answers at these two problems and proposes a general two-steps procedure. The …rst step relies on …tting the discount bond yields and the second step relies on estimating statistically independent variables. Using the distribution of independent components identi…ed, we combine their movements to produce stress-scenarios by specifying separate "shocks" in each of the directions given by the three independent compo- nents. We apply our methodology to the U.S. term structure of interest rates over the last three decades.


https://hal.archives-ouvertes.fr/hal-00550582
Contributor : Arthur Charpentier <>
Submitted on : Tuesday, December 28, 2010 - 9:39:34 PM
Last modification on : Tuesday, May 19, 2015 - 4:35:41 PM

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Arthur Charpentier, Christophe Villa. Generating Yield Curve Stress-Scenarios. 2010. <hal-00550582>

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