A1808
Title: Dynamic quantile model for bond pricing
Authors: Frantisek Cech - UTIA AV CR, v.v.i. (Czech Republic) [presenting]
Jozef Barunik - UTIA AV CR vvi (Czech Republic)
Abstract: A dynamic quantile model for bond pricing is introduced. We consider an agent who values securities by maximizing quantile level of her utility instead of the expected utility function. The shift to quantile preferences from the traditional von Neuman-Morgensterns utility allows us to study the bond pricing by the economic agents differing at their risk aversion. In the empirical application, we focus on the various US and German government bonds. We rely on the flexible quantile regression framework applied to the bond futures contract from the CBOT and EUREX exchanges. We find idiosyncratic risk to price government bond futures at daily frequency, although, the pricing patterns differ between US and Germany. At the lower frequency, we identify instantaneous forward rates to serve as valid risk factors at several quantiles for US government bond futures.
