Affine Models of the Term Structure of Interest Rates, Inflation and Corporate Credit Spread: A Kalman Filter Estimation

In this work we estimate affine term structure models of interest rates, BEI rates and default rates in a period of Crisis. We estimate one factor, two factor and three factor model on both interest rates and BEI rates. We use information criteria to decide the number of factors to include in the models. We also perform the PCA analysis on interest rates, BEI rates and default rates bootstrapped from European OIS rates, European ZC inflation swap and CDS of Italian firms and Italian Government to analyze the determinants of interest rates, BEI rates and default rates changes. We compare the results found in interest rates and BEI rates models with the results of interest rates and BEI rates found by the PCA. We use the results on both interest rates models and BEI rates models to estimate a multifactor model which jointly considers the effect of interest rates and the effect of BEI rates on default rates of Italian corporations and Italian Government