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 is introduced for bond pricing with an agent who values securities by maximizing the quantile level of her utility function. The transition from traditional to quantile preferences allows us to study the pricing of the term structure of interest rates by economic agents differing in their levels of risk aversion. Moreover, the framework is robust to fat tails commonly observed in the empirical data. In the application, we focus on the quantile pricing of the two, five, ten and thirty years US and German government bonds. For the analysis, we use flexible quantile regression framework which is applied over highly liquid bond futures contract from the Chicago Board of Trade and EUREX exchanges.