Modeling the Term Structure from the On-the-Run Treasury Yield Curve
25 Pages Posted: 26 Nov 2001
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Modeling the Term Structure from the On-the-Run Treasury Yield Curve
Date Written: November 2001
Abstract
We propose a new model to estimate the term structure of interest rates using observed on-the-run Treasury yields. The new model is an improvement over models that require apriori knowledge of the shape of the yield curve to estimate the term structure. The general form of the model is an exponential function that depends on the estimation of four parameters fit by nonlinear least squares and has straightforward interpretations. In comparing the proposed model with current yield curve smoothing models, we find that, for the data used, the proposed model does best overall in terms of pricing accuracy both in-sample and out-of-sample.
Keywords: on-the-run Treasuries, Yield curve estimation
JEL Classification: E34, G12
Suggested Citation: Suggested Citation
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