Linear Gaussian Affine Term Structure Models with Unobservable Factors: Calibration and Yield Forecasting

This paper provides a significant numerical evidence for out-of-sample forecasting ability of linear Gaussian interest rate models with unobservable underlying factors. We calibrate one, two and three factor linear Gaussian models using the Kalman filter on two different bond yield data sets and compare their out-of-sample forecasting performance. One step ahead as well as four step ahead out-of-sample forecasts are analyzed based on the weekly data. When evaluating the one step ahead forecasts, it is shown that a one factor model may be adequate when only the short-dated or only the long-dated yields are considered, but two and three factor models performs significantly better when the entire yield spectrum is considered. Furthermore, the results demonstrate that the predictive ability of multi-factor models remains intact far ahead out-of-sample, with accurate predictions available up to one year after the last calibration for one data set and up to three months after the last calibration for the second, more volatile data set. The experimental data denotes two different periods with different yield volatilities, and the stability of model parameters after calibration in both the cases is deemed to be both significant and practically useful. When it comes to four step ahead predictions, the quality of forecasts deteriorates for all models, as can be expected, but the advantage of using a multi-factor model as compared to a one factor model is still significant. In addition to the empirical study above, we also suggest a nonlinear filter based on linear programming for improving the term structure matching at a given point in time. This method, when used in place of a Kalman filter update, improves the term structure fit significantly with a minimal added computational overhead. The improvement achieved with the proposed method is illustrated for out-of-sample data for both the data sets. This method can be used to model a parameterized yield curve consistently with the underlying short rate dynamics

Isospectral flow in Loop Algebras and Quasiperiodic Solutions of the Sine-Gordon Equation

The sine-Gordon equation is considered in the hamiltonian framework provided by the Adler-Kostant-Symes theorem. The phase space, a finite dimensional coadjoint orbit in the dual space \grg^* of a loop algebra \grg, is parametrized by a finite dimensional symplectic vector space $W$ embedded into \grg^* by a moment map. Real quasiperiodic solutions are computed in terms of theta functions using a Liouville generating function which generates a canonical transformation to linear coordinates on the Jacobi variety of a suitable hyperelliptic curve.Comment: 12 pg

Reflectionless analytic difference operators I. algebraic framework

We introduce and study a class of analytic difference operators admitting reflectionless eigenfunctions. Our construction of the class is patterned after the Inverse Scattering Transform for the reflectionless self-adjoint Schr\"odinger and Jacobi operators corresponding to KdV and Toda lattice solitons

A Symmetric Generalization of Linear B\"acklund Transformation associated with the Hirota Bilinear Difference Equation

The Hirota bilinear difference equation is generalized to discrete space of arbitrary dimension. Solutions to the nonlinear difference equations can be obtained via B\"acklund transformation of the corresponding linear problems.Comment: Latex, 12 pages, 1 figur

Commuting Flows and Conservation Laws for Noncommutative Lax Hierarchies

We discuss commuting flows and conservation laws for Lax hierarchies on noncommutative spaces in the framework of the Sato theory. On commutative spaces, the Sato theory has revealed essential aspects of the integrability for wide class of soliton equations which are derived from the Lax hierarchies in terms of pseudo-differential operators. Noncommutative extension of the Sato theory has been already studied by the author and Kouichi Toda, and the existence of various noncommutative Lax hierarchies are guaranteed. In the present paper, we present conservation laws for the noncommutative Lax hierarchies with both space-space and space-time noncommutativities and prove the existence of infinite number of conserved densities. We also give the explicit representations of them in terms of Lax operators. Our results include noncommutative versions of KP, KdV, Boussinesq, coupled KdV, Sawada-Kotera, modified KdV equations and so on.Comment: 22 pages, LaTeX, v2: typos corrected, references added, version to appear in JM

Basic Representations of A_{2l}^(2) and D_{l+1}^(2) and the Polynomial Solutions to the Reduced BKP Hierarchies

Basic representations of A_{2l}^(2) and D_{l+1}^(2) are studied. The weight vectors are represented in terms of Schur's $Q$-functions. The method to get the polynomial solutions to the reduced BKP hierarchies is shown to be equivalent to a certain rule in Maya game.Comment: January 1994, 11 page

Dual Resonance Model Solves the Yang-Baxter Equation

The duality of dual resonance models is shown to imply that the four point string correlation function solves the Yang-Baxter equation. A reduction of transfer matrices to $A_l$ symmetry is described by a restriction of the KP $\tau$ function to Toda molecules.Comment: 10 pages, LaTe

Highest weight representations of the quantum algebra U_h(gl_\infty)

A class of highest weight irreducible representations of the quantum algebra U_h(gl_\infty) is constructed. Within each module a basis is introduced and the transformation relations of the basis under the action of the Chevalley generators are explicitly written.Comment: 7 pages, PlainTe

Geometric and combinatorial realizations of crystal graphs

For irreducible integrable highest weight modules of the finite and affine Lie algebras of type A and D, we define an isomorphism between the geometric realization of the crystal graphs in terms of irreducible components of Nakajima quiver varieties and the combinatorial realizations in terms of Young tableaux and Young walls. For affine type A, we extend the Young wall construction to arbitrary level, describing a combinatorial realization of the crystals in terms of new objects which we call Young pyramids.Comment: 34 pages, 17 figures; v2: minor typos corrected; v3: corrections to section 8; v4: minor typos correcte