Estimating and Interpreting Zero Coupon and Forward Rates: Australia, 1992-2001
59 Pages Posted: 1 Feb 2004
Date Written: January 15, 2004
This paper presents estimates of zero coupon yield curve of Australian treasuries. Pure discount bonds and implied forward rates, although not available for the entire yield curve, are extremely useful for pricing, modelling and analyzing financial securities, hence, the need to extract the theoretical yield curve from noisy prices observed in the market place. Two popular models for curve fitting: the Nelson-Siegel and Svensson model, together with two specifications are adopted for estimating zero coupon and forward yield rates. The six parameter Svensson's model outperforms the more parsimonious Nelson-Siegel four parameter functional form. A structural break is detected in the zero coupon time series in the test period.
Keywords: Curve fitting, forward rate, parsimonious model, term structure, yield, zero coupon bond
JEL Classification: G12, C13
Suggested Citation: Suggested Citation