Instruct: Identify the main and secondary category of Arxiv papers based on the titles and abstracts
Query: Phenomenology of the Interest Rate Curve   This paper contains a phenomenological description of the whole U.S. forward
rate curve (FRC), based on an data in the period 1990-1996. We find that the
average FRC (measured from the spot rate) grows as the square-root of the
maturity, with a prefactor which is comparable to the spot rate volatility.
This suggests that forward rate market prices include a risk premium,
comparable to the probable changes of the spot rate between now and maturity,
which can be understood as a `Value-at-Risk' type of pricing. The instantaneous
FRC however departs form a simple square-root law. The distortion is maximum
around one year, and reflects the market anticipation of a local trend on the
spot rate. This anticipated trend is shown to be calibrated on the past
behaviour of the spot itself. We show that this is consistent with the
volatility `hump' around one year found by several authors (and which we
confirm). Finally, the number of independent components needed to interpret
most of the FRC fluctuations is found to be small. We rationalize this by
showing that the dynamical evolution of the FRC contains a stabilizing second
derivative (line tension) term, which tends to suppress short scale distortions
of the FRC. This shape dependent term could lead, in principle, to arbitrage.
However, this arbitrage cannot be implemented in practice because of
transaction costs. We suggest that the presence of transaction costs (or other
market `imperfections') is crucial for model building, for a much wider class
of models becomes eligible to represent reality.

9
The categories of this paper are: nlin
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The categories of this paper are: q-bio
36
The categories of this paper are: cmp-lg
16
The categories of this paper are: stat
2
The categories of this paper are: math
18
The categories of this paper are: econ
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The categories of this paper are: math-ph
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The categories of this paper are: mtrl-th
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The categories of this paper are: solv-int
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The categories of this paper are: eess
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The categories of this paper are: acc-phys
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The categories of this paper are: comp-gas
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The categories of this paper are: ao-sci
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The categories of this paper are: adap-org
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The categories of this paper are: bayes-an
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The categories of this paper are: chem-ph