Modified B-Spline Model and Estimation of the Term Structure of Interest Rate

• Main Authors: Chung-Hsien Chang, 張仲賢
• Other Authors: Hong-Fwu Yu
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/91461866342988739106

碩士 === 國立高雄第一科技大學 === 財務管理所 === 91 === ABSTRACT This paper uses the Basis spline approximation defined by Powell（1981）to fit the term structure of the Taiwanese Government Bond market. Since the Taiwanese Government bond market is an illiquid bond market, it must consider the illiquidity constraint when estimating the term structure of interest rate in this market. The empirical results show that the fitting performance of B-spline model is quite well with the mean R-square higher than 94.03%. And the fitting performance of B-spline model with liquidity-weighted objective functions are better than the original B-spline model, because of (1)the mean R-square is higher than 97.6%, (2) 98.58% of the observations, the R-square is higher than 90%, and (3)all of the observations, the estimated price error percentage is less than 1%.Based on the results of this study, we conclude the fitting performance of B-spline model could be effectively improved considering the illiquidity constraint.