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Yield Curve Estimation In The Illiquid Market: Framework, Models And Empirical Study

Author

Listed:
  • CHI XIE

    (College of Business Management, Hunan University, Changsha, Hunan, 410082, China)

  • HUI CHEN

    (College of Business Management, Hunan University, Changsha, Hunan, 410082, China)

  • XIANG YU

    (College of Business Management, Hunan University, Changsha, Hunan, 410082, China)

Abstract

In this paper, we propose a framework to estimate the yield curve in the illiquid market. Within this framework, seven different curve-fitting models are compared from four aspects with the trading data of government bonds listed in the Shanghai Stock Exchange (SSE) of China. We find that the exponential spline model is optimal for this market. The characteristics and reasons underlying SSE interest rate fluctuations in the past two years are also analyzed.

Suggested Citation

  • Chi Xie & Hui Chen & Xiang Yu, 2006. "Yield Curve Estimation In The Illiquid Market: Framework, Models And Empirical Study," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 467-481.
    • Handle: RePEc:wsi:ijitdm:v:05:y:2006:i:03:n:s0219622006002064
    DOI: 10.1142/S0219622006002064
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    References listed on IDEAS

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    1. Mark Fisher & Douglas Nychka & David Zervos, 1995. "Fitting the term structure of interest rates with smoothing splines," Finance and Economics Discussion Series 95-1, Board of Governors of the Federal Reserve System (U.S.).
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    1. repec:rmk:rmkbae:v:9:y:mics:i:1:p:9(1 is not listed on IDEAS
    2. Fatma Chakroun & Fathi Abid, 2014. "A Methodology to Estimate the Interest Rate Yield Curve in Illiquid Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 13(3), pages 305-333, December.

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