Integrated Modelling of Stock and Bond Markets

We present a cascade model which uses fundamental macroeconomic processes, like inflation rates and GDP growth rates, to describe the evolution of interest rates and equity returns. It is a consequent advancement of Schmid and Zagst (2000) and Zagst, Schmid, and Antes (2004). An innovative feature of the new model is the integration of inflation-linked bonds to obtain real interest rates. Furthermore, we compare the new model with the model of Barrie and Hibbert (2001) by looking at the goodness of fit and by testing the ability to give reasonable input for practical applications.     «

We present a cascade model which uses fundamental macroeconomic processes, like inflation rates and GDP growth rates, to describe the evolution of interest rates and equity returns. It is a consequent advancement of Schmid and Zagst (2000) and Zagst, Schmid, and Antes (2004). An innovative feature of the new model is the integration of inflation-linked bonds to obtain real interest rates. Furthermore, we compare the new model with the model of Barrie and Hibbert (2001) by looking at the goodness...     »