Term Structure Estimation from On-the-Run Treasuries
30 Pages Posted: 14 Nov 2001
There are 2 versions of this paper
Term Structure Estimation from On-the-Run Treasuries
Date Written: November 2001
Abstract
Five methods of estimating the term structure from on-the-run Treasuries are compared with respect to error in spot rate estimation, forward rate estimation and coupon bond pricing. The methods can all be considered variants of the bootstrapping technique. The two discrete-time bootstrapping methods are based on linear and cubic interpolation of the yield curve. Two continuous-time bootstrapping methods are based on exponential functional forms for the yield curve and a third is based on a bilinear transformation of a power function. Simulated bond samples with and without random error are employed to study the relative importance of interpolation error and random pricing error. CRSP bond data are used in assessing the accuracy of the methods in pricing liquid and illiquid bonds. Two methods stand out in terms of good interpolation properties and robustness in the face of pricing errors. These are the Nelson and Siegel and the Mansi and Phillips methods. Both are based on exponential functions.
Keywords: Term Structure Estimation, Yield Curve Smoothing, On-the-run Treasuries, Bond Valuation
JEL Classification: D4, E4, G1, N2
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Modeling the Term Structure from the On-the-Run Treasury Yield Curve
By Sattar Mansi and Jeffery H. Phillips
-
The Effect of Transaction Size on Off-the-Run Treasury Prices
By David F. Babbel, Craig B. Merrill, ...
-
How Well Do Constant Maturity Treasuries Approximate the On-the-Run Term Structure
By Sattar Mansi and James V. Jordan
-
New Perspectives in Asset-Liability Management for Insurers
By Ako Doffou
-
Yield Curve Smoothing Models of the Term Structure
By Sattar Mansi and George M. Jabbour
-
The Interest Rate Sensitivity of Real Estate
By Alain Chaney and Martin Hoesli
-
A Measure of Liquidity Risk in a Sovereign Debt Market
By Emma Berenguer, Ricardo Gimeno, ...