Answered: 5. In the Svensson (1994) model of the… | bartleby

Linear Algebra: A Modern Introduction

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter2: Systems Of Linear Equations

Section2.4: Applications

Problem 27EQ

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5.
In the Svensson (1994) model of the term structure of interest rates
r(t) = Bor+ B₁, (1-e)/2,t + B₂,
(((-e)/2,t)-e)
21
+ B₂, (((1-e¹¹²) / 22₂,₁ t) -e¹2₁²)
3r
Where rt (T) is the interest rate at time t of maturity r
Bot, B1, B2t and B3t are estimated parameters
At and Azt are decay parameters.
Explain what each of the four terms in the model are meant to measure.

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