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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2026
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2604.25403 |
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| _version_ | 1866908997843419136 |
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| author | Xu, Maochun Liang, Yunqi Hong, Yi |
| author_facet | Xu, Maochun Liang, Yunqi Hong, Yi |
| contents | Persistent shifts in term-structure dynamics undermine the stability of single-regime models in long samples. We develop an arbitrage-free regime-switching generalized CIR (RS-GCIR) model that jointly prices the Chinese government bond (CGB) curve and corporate bond curves. To capture the systematic transmission from interest-rate conditions to credit spreads, we structure the model into two blocks and price corporate bonds conditional on the prevailing rate regime. The rate block features a two-state RS-GCIR short-rate process estimated from CGB zero-coupon curves, while the credit block embeds CIR-type credit factors in an intensity-based framework for rating migration and default. We implement a block-recursive Unscented Kalman Filter (UKF) procedure--filtering the rate block first and the credit block next--using weekly data from 2014--2025, a period that begins with the onset of China's modern corporate default cycle. We identify two persistent rate regimes with distinct level--volatility profiles. Relative to single-regime benchmarks, regime switching improves joint curve fit, delivers economically interpretable filtered regime probabilities, and sharpens the decomposition of corporate yields into discounting and credit compensation. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2604_25403 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Corporate Bond Yield Curve Modeling: A Rating-Based Regime-Switching Generalized CIR Approach Xu, Maochun Liang, Yunqi Hong, Yi Pricing of Securities Persistent shifts in term-structure dynamics undermine the stability of single-regime models in long samples. We develop an arbitrage-free regime-switching generalized CIR (RS-GCIR) model that jointly prices the Chinese government bond (CGB) curve and corporate bond curves. To capture the systematic transmission from interest-rate conditions to credit spreads, we structure the model into two blocks and price corporate bonds conditional on the prevailing rate regime. The rate block features a two-state RS-GCIR short-rate process estimated from CGB zero-coupon curves, while the credit block embeds CIR-type credit factors in an intensity-based framework for rating migration and default. We implement a block-recursive Unscented Kalman Filter (UKF) procedure--filtering the rate block first and the credit block next--using weekly data from 2014--2025, a period that begins with the onset of China's modern corporate default cycle. We identify two persistent rate regimes with distinct level--volatility profiles. Relative to single-regime benchmarks, regime switching improves joint curve fit, delivers economically interpretable filtered regime probabilities, and sharpens the decomposition of corporate yields into discounting and credit compensation. |
| title | Corporate Bond Yield Curve Modeling: A Rating-Based Regime-Switching Generalized CIR Approach |
| topic | Pricing of Securities |
| url | https://arxiv.org/abs/2604.25403 |