RSESG Comparison Graph 2000 1 year yield

The following is the full picture that the header is a partial picture from.  Click on graph to see enlarged clearer version where writing is distinct.

RSDMRP v DMRP 5th 95th Percentile Pair Dec 2000 Start 1 year yield US Treasury

RSDMRP v DMRP 5th 95th Percentile Pair Dec 2000 Start 1 year yield US Treasury

RSDMRP v DMRP 5th 95th Percentile Pair Dec 2000 Start 1 year yield US Treasury

The graph shows the 5th 95th percentile pairs of two models. These start from Dec 2000. Also shown is the historical line, H, in green.

DMRP stands for Double Mean Reverting Process. It is often called the 2 factor Black Karasinski model, even though they never published such a model.

RS-DMRP is a regime switching super model of the DMRP.

The graph shows that the 5th percentile of DMRP does not go low enough from 2000 to contain the historical line in the two low interest rate episodes. It also can’t deal with further low rate policy from Ben Bernanke at the Federal Reserve.

The Beaglehole Tenney Double Decay Model of 1991 is an example of a model in the Double Mean Reverting Framework. It is easier to solve because it is a 2 factor multivariate model. It is sometimes called Two Factor Vasicek even though Vasicek never wrote on such a model.

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Posted in Beaglehole Tenney, Beaglehole Tenney Double Decay Model, Ben Bernanke, DMRP, Federal Reserve Board, Mark Tenney Interest Rate Model, Quantitative Easing, Regime Switching DMRP, Solvency II, Two Factor Black Karasinski, Two Factor Vasicek, Uncategorized, Zero Rate Policy | Leave a comment