Anh Le | Tractable No - Dominance Term Structure Models and the Zero Lower Bound

On November 8, 2018, the 5th "CIFER Macroeconomics and International Economics Workshop" of the Center for International Finance and Economics Research (CIFER) at the National Institute of Financial Research of Tsinghua University was successfully held. Anh Le, an associate professor at the Business School of Pennsylvania State University, had in - depth exchanges with experts and scholars present on his latest research results in the field of the traceable dynamic term model.

Anh Le obtained a Doctor of Finance degree from the Stern School of Business at New York University in 2008. His research areas cover related fields such as macroeconomics, term models, and price volatility risks (for a detailed resume, please refer to the post on November 7).


In this Workshop, first of all, Anh Le sorted out the advantages and disadvantages of the Gaussian Model and the Black Model. He pointed out that although the Gaussian Model is traceable, when the interest rate is close to 0, there is a 50% probability that the interest rate in the next period will be negative; while the Black Model can ensure that the interest rate is non - negative, but the model lacks traceability. Then, Anh Le shared how to effectively exclude the dominant strategy using the model and confirmed the accuracy of this method. Further, Anh Le borrowed the method of the Black Style Model and added the condition that the lower limit of the interest rate is zero to the term model. Finally, based on the above research, Anh Le constructed a traceable dynamic term model and selected the U.S. bond price data before and after 2008 for simulation respectively, proving that this term model can better predict the yield and the Sharpe ratio. Anh Le believes that this new term model takes into account both traceability and ensures that the lower limit of the interest rate is greater than 0. Compared with other ZLB models, this model is more accurate and practical in predicting yields. At the same time, this model can provide more research perspectives for future scholars' research in the direction of dynamic term models.