Flexible Term Structure Estimation: Which Method is Preferable?
AbstractWe show that the recently developed nonparametric procedure for fitting the term structure of interest rates developed by Linton, Mammen, Nielson and Tanggaard (2000) overall performs notably better than the highly flexible McCulloch (1975) cubic spline and Fama and Bliss (1987) bootstrap methods.� However, if interest is limited to the Treasury bill region alone then the Fama-Bliss method demonstrates superior performance.� We further show, via simulation, that using the estimated short rate from Linton-Mammen-Nielson-Tanggaard procedure as a proxy for the short rate has higher precision than the commonly used proxies of the one and three month Treasury bill rates.� It is demonstrated that this precision is important when using proxies to estimate the stochastic process governing the evolution of the short rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp513.
Date of creation: Sep 2004
Date of revision:
Contact details of provider:
Web page: http://www.lse.ac.uk/fmg/
Other versions of this item:
- Andrew Jeffrey & Oliver Linton & Thong Nguyen, 2001. "Flexible term structure estimation: which method is preferable?," LSE Research Online Documents on Economics 24767, London School of Economics and Political Science, LSE Library.
- F3 - International Economics - - International Finance
- G3 - Financial Economics - - Corporate Finance and Governance
- J1 - Labor and Demographic Economics - - Demographic Economics
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration).
If references are entirely missing, you can add them using this form.