Graduate School of Business, Stanford University. We are grateful for the research assistance of Qiang Dai, Stephen Gray, and Raj Tewari, and comments from Mark Fisher, Dilip Madan, Ming Huang, René Stulz, an anonymous referee, and seminar participants at the National Bureau of Economic Research, the University of Wisconsin Finance Symposium, the University of California, Berkeley, the University of Chicago, Duke University, the University of Arizona, and the University of California at San Diego, and from an anonymous referee. Data were kindly provided by Goldman Sachs and Co. Financial support was provided by the Stanford GSB Financial Research Initiative. These results appeared in preliminary form under the title “Econometric Modeling of Term Structures of Defaultable Bonds.” An extended version of the valuation models from that article now appears in Duffie and Singleton (1996).
An Econometric Model of the Term Structure of Interest-Rate Swap Yields
Article first published online: 18 APR 2012
1997 The American Finance Association
The Journal of Finance
Volume 52, Issue 4, pages 1287–1321, September 1997
How to Cite
DUFFIE, D. and SINGLETON, K. J. (1997), An Econometric Model of the Term Structure of Interest-Rate Swap Yields. The Journal of Finance, 52: 1287–1321. doi: 10.1111/j.1540-6261.1997.tb01111.x
- Issue published online: 18 APR 2012
- Article first published online: 18 APR 2012
This article develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, we are able to compute model-based estimates of the defaultable zero-coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero-coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade.