Term Structure Multiplicity and Clientele in Markets with Transactions Costs and Taxes

Dermody, Jaime Cuevas; Prisman, Eliezer Z.

doi:10.2307/2328142

Cited by 13 publications

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“…be measured exactly" because of the existence of bid-ask spread. Dermody and Prisman (1988) demonstrated that, even under the no-arbitrage assumption, transaction costs (bid-ask spread and fees) are responsible for the existence of an infinitely countable, convex, and compact set of term structures for each class of investors. Therefore, the bid-ask spread has to be considered during the curve estimation.…”

Section: Interest Rate Curve Estimationmentioning

confidence: 99%

Estimating Interest Rate Curves by Support Vector Regression

Monteiro¹

2010

Econometric Reviews

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A model that seeks to estimate an interest rate curve should have two desirable capabilities in addition to the usual characteristics required from any function-estimation model: it should incorporate the bid-ask spreads of the securities from which the curve is extracted and restrict the curve shape. The goal of this article is to estimate interest rate curves by using Support Vector Regression (SVR), a method derived from the Statistical Learning Theory developed by Vapnik (1995). The motivation is that SVR features these extra capabilities at a low estimation cost. The SVR is specified by a loss function, a kernel function and a smoothing parameter. SVR models the daily U.S. dollar interest rate swap curves, from 1997 to 2001. As expected from a priori and sensibility analyses, the SVR equipped with the kernel generating a spline with an infinite number of nodes was the best performing SVR. Comparing this SVR with other models, it achieved the best cross-validation interpolation performance in controlling the bias-variance trade-off and generating the lowest error considering the desired accuracy fixed by the bid-ask spreads.Bid-ask spread, Interest rate curves, Interest rate swaps, Support Vector Regression,

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Section: Interest Rate Curve Estimationmentioning

confidence: 99%

Estimating Interest Rate Curves by Support Vector Regression

Monteiro¹

2010

Econometric Reviews

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“…Schaefer (1981, 1982a, belong to this class of models. Other examples are Dybvig and Ross (1986), , Dammon and Green (1987), Ross (1987), Dermody and Prisman (1988) and Dermody and Rockafeller (1991). One-period models do not give rise to any problems with accruals.…”

Section: Introductionmentioning

confidence: 99%

Valuation before and after tax in the discrete time, finite state no arbitrage model

Jensen

2008

Ann Finance

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“…The notion that every future cash ‡ow has a net present value determinable from a single valuation operator breaks down when the assumption of a perfect market is removed and there are transaction costs and taxes (see Prisman 1986, Ross 1987, Dermody and Prisman 1988, Dermody and Rockafellar 1991. The fact that prices and transaction costs for long and short trades are not the same, and that taxation of long-and short-sides pro…ts are not always symmetric further complicate the problem.…”

Section: Introductionmentioning

confidence: 99%

Multiperiod Asset Pricing in the Presence of Transaction Costs and Taxes

Poon

Wang

2000

SSRN Journal

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This paper models the e¤ect of transaction costs and taxes on asset pricing in a multi-period setting. It extends the study by Dermody and Rockafellar (DR) (1991), where it was shown that term structure valuation is agent-speci…c owing to agents' di¤erent tax classes, and that a multiplicity of valuation operators exists owing to di¤erent costs associated with long and short trades. Unlike DR who focus solely on the riskless bond, this paper analyses both risky and riskless security pricing in a more general framework of taxation. Similar to DR, the tightest no arbitrage present value range for a claim is derived here without the knowledge of investor preferences. The Jouini and Kallal (1995) analysis of short sales in a tax free economy is a special case of our model. We also establish the existence of a set of pseudo risk neutral probability measures, under which the discounted long price is a supermartingale and the discounted short price is a submartingale, is the necessary and su¢cient condition for no arbitrage.JEL classi…cation: G10, G12, C61.

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Term Structure Multiplicity and Clientele in Markets with Transactions Costs and Taxes

Cited by 13 publications

References 0 publications

Estimating Interest Rate Curves by Support Vector Regression

Estimating Interest Rate Curves by Support Vector Regression

Valuation before and after tax in the discrete time, finite state no arbitrage model

Multiperiod Asset Pricing in the Presence of Transaction Costs and Taxes

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