Essays on the term structure of interest rates

This PhD thesis contains three main chapters on macro finance, with a focus on the term structure of interest rates and the applications of state-of-the-art Bayesian econometrics. Except for Chapter 1 and Chapter 5, which set out the general introduction and conclusion, each of the chapters can be considered as a standalone piece of work. In Chapter 2, we model and predict the term structure of US interest rates in a data rich environment. We allow the model dimension and parameters to change over time, accounting for model uncertainty and sudden structural changes. The proposed timevarying parameter Nelson-Siegel Dynamic Model Averaging (DMA) predicts yields better than standard benchmarks. DMA performs better since it incorporates more macro-finance information during recessions. The proposed method allows us to estimate plausible realtime term premia, whose countercyclicality weakened during the financial crisis. Chapter 3 investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in the bond yields of seven advanced economies is due to global co-movement. Our results suggest that global inflation is the most important factor among global macro fundamentals. Non-fundamental factors are essential in driving global co-movements, and are closely related to sentiment and economic uncertainty. Lastly, we analyze asymmetric spillovers in global bond markets connected to diverging monetary policies. Chapter 4 proposes a no-arbitrage framework of term structure modeling with learning and model uncertainty. The representative agent considers parameter instability, as well as the uncertainty in learning speed and model restrictions. The empirical evidence shows that apart from observational variance, parameter instability is the dominant source of predictive variance when compared with uncertainty in learning speed or model restrictions. When accounting for ambiguity aversion, the out-of-sample predictability of excess returns implied by the learning model can be translated into significant and consistent economic gains over the Expectations Hypothesis benchmark.

Essays on the term structure of interest rates

This PhD thesis contains three main chapters on macro finance, with a focus on the term structure of interest rates and the applications of state-of-the-art Bayesian econometrics. Except for Chapter 1 and Chapter 5, which set out the general introduction and conclusion, each of the chapters can be considered as a standalone piece of work. In Chapter 2, we model and predict the term structure of US interest rates in a data rich environment. We allow the model dimension and parameters to change over time, accounting for model uncertainty and sudden structural changes. The proposed time-varying parameter Nelson-Siegel Dynamic Model Averaging (DMA) predicts yields better than standard benchmarks. DMA performs better since it incorporates more macro-finance information during recessions. The proposed method allows us to estimate plausible real-time term premia, whose countercyclicality weakened during the financial crisis. Chapter 3 investigates global term structure dynamics using a Bayesian hierarchical factor model augmented with macroeconomic fundamentals. More than half of the variation in the bond yields of seven advanced economies is due to global co-movement. Our results suggest that global inflation is the most important factor among global macro fundamentals. Non-fundamental factors are essential in driving global co-movements, and are closely related to sentiment and economic uncertainty. Lastly, we analyze asymmetric spillovers in global bond markets connected to diverging monetary policies. Chapter 4 proposes a no-arbitrage framework of term structure modeling with learning and model uncertainty. The representative agent considers parameter instability, as well as the uncertainty in learning speed and model restrictions. The empirical evidence shows that apart from observational variance, parameter instability is the dominant source of predictive variance when compared with uncertainty in learning speed or model restrictions. When accounting for ambiguity aversion, the out-of-sample predictability of excess returns implied by the learning model can be translated into significant and consistent economic gains over the Expectations Hypothesis benchmark.

Higgs production in association with top quarks at the LHC

Since it has been found that the MadGraph Monte Carlo generator offers superior flavour-matching capability as compared to Alpgen, the suitability of MadGraph for the generation of ttb¯ ¯b events is explored, with a view to simulating this background in searches for the Standard Model Higgs production and decay process ttH, H ¯ → b ¯b. Comparisons are performed between the output of MadGraph and that of Alpgen, showing that satisfactory agreement in their predictions can be obtained with the appropriate generator settings. A search for the Standard Model Higgs boson, produced in association with the top quark and decaying into a b ¯b pair, using 20.3 fb−1 of 8 TeV collision data collected in 2012 by the ATLAS experiment at CERN’s Large Hadron Collider, is presented. The GlaNtp analysis framework, together with the RooFit package and associated software, are used to obtain an expected 95% confidence-level limit of 4.2 +4.1 −2.0 times the Standard Model expectation, and the corresponding observed limit is found to be 5.9; this is within experimental uncertainty of the published result of the analysis performed by the ATLAS collaboration. A search for a heavy charged Higgs boson of mass mH± in the range 200 ≤ mH± /GeV ≤ 600, where the Higgs mediates the five-flavour beyond-theStandard-Model physics process gb → tH± → ttb, with one top quark decaying leptonically and the other decaying hadronically, is presented, using the 20.3 fb−1 8 TeV ATLAS data set. Upper limits on the product of the production cross-section and the branching ratio of the H± boson are computed for six mass points, and these are found to be compatible within experimental uncertainty with those obtained by the corresponding published ATLAS analysis.