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Seoul Journal of Economics - Vol. 24 , No. 3
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Seoul Journal of Economics - Vol. 24, No. 3, pp. 389-426
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2011
Received 27 Oct 2010 Revised 02 Dec 2010 Accepted 03 Dec 2010

Co-movements of International Term Structure Slopes and Affine Term Structure Models
Won Tark Doh ; In Seok Baek
Head of Fixed Income Team 1, Samsung Asset Management, 6th F1., Samsung Life Yeouido Bldg. 36-1, Yeouido-Dong, Yeongdeungpo-Gu, Seoul 150-886, Korea, Tel: +82-2-3774-7682, Fax: +82-2-3774-7670 (rtable@business.kaist.edu;)
Corresponding Author, Senior Quant Strategist, Samsung Asset Management, 6th F1., Samsung Life Yeouido Bldg. 36-1, Yeouido-Dong, Yeongdeungpo-Gu, Seoul 150-886, Korea, Tel: +82-2-3774-7719, Fax: +82-2-3774-7670 (inseok.baek70@gmail.com)

JEL Classification: C14, C15, F31, G12

Abstract

This present paper provides both theoretical and empirical analyses of multi-factor joint affine term structure models (JATSMs) in explaining the co-movements of international term structure slopes. We extend the single-country affine term structure models of Dai and Singleton (2000) to a two-country setup. Using the efficient method of moments and reprojection analysis, we find that a JATSM with two square-root factors and one Gaussian factor performs best in capturing the correlation between the US and the UK term structure slopes.

Keywords: Affine term structure models, International term structure models, Correlations among international term structure slopes, Efficient method of moments, Reprojection method
Acknowledgments

We would like to thank two anonymous referees for their valuable comments.

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