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Estimation of a Liquidity Premium for Swedish Inflation Linked Bonds
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2014 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

It is well known that the inflation linked breakeven inflation, defined as the difference between a nominal yield and an inflation linked yield, sometimes is used as an approximation of the market’s inflation expectation. D’Amico et al. (2009, [5]) show that this is a poor approximation for the US market. Based on their work, this thesis shows that the approximation also is poor for the Swedish bond market. This is done by modelling the Swedish bond market using a five-factor latent variable model, where an inflation linked bond specific premium is introduced. Latent variables and parameters are estimated using a Kalman filter and a maximum likelihood estimation. The conclusion is drawn that the modelling was successful and that the model implied outputs gave plausible results.

Place, publisher, year, edition, pages
TRITA-MAT-E, 2014:27
Keyword [en]
Inflation linked yields, State space model, Kalman filter, Maximum likelihood estimation
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-145756OAI: diva2:721674
Subject / course
Mathematical Statistics
Educational program
Master of Science - Mathematics
Available from: 2014-06-04 Created: 2014-05-31 Last updated: 2014-06-04Bibliographically approved

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