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Modeling Individual US T- Bond Prices

Author

Listed:
  • Hiroshi Tsuda
  • Takeaki Kariya

Abstract

Kariya and Tsuda (1994) proposed the TDM (Time Dependent Markov) bond pricing model and showed that it is of great in-sample performance. In less than 0.5 yen in each month over 12 years, implying that the error rate is less than 0.5%. In addition, Kariya and Tsuda (1996) demonstrated the significant predictive power of the model for indeividual bond prices of JG bonds. In this pper, the TDM model is applied to US-T (Treasury) bond and note data, and the in-sample performance for the US T-bonds is shown to be greater than that of JG bonds. Further the predictive performance of individual prices and returns is as good as that of JG bonds. Hence for the US T-bonds, the TDM model will be a very useful model for construction of bond portfolios and bond trading in practice.

Suggested Citation

  • Hiroshi Tsuda & Takeaki Kariya, 1998. "Modeling Individual US T- Bond Prices," Discussion Paper Series a345, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:a345
    as

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