Indian G-Sec Market II: Anatomy of Short Rates
AbstractThis paper demonstrates how, without mechanically applying any formula like Nelson-Siegel or Nelson-Siegel-Svensson straight cut, a short term yield curve can intuitively be constructed with traded securities and then plugging the gaps with regression and cubic splines on case by case basis, which contains market information and gives enough room to scenario analysis for designing portfolio strategies. Opportunity of short run arbitrage is found non-existent. In terms of further research there is scope of running time series regression of short rates on 3 month MIBOR and one dummy variable for the news of RBI’s auction of dated securities. The patterns of spot rates, forward rates and par rates are similarly flat because the market participants seem not take any trade decisions on the eve of RBI auction and inflationary information content.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27553.
Date of creation: 18 Dec 2010
Date of revision:
yield curve; term structure; treasury bill; dated security; short rate; spot rate; par yield; forward rate;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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- David Durand, 1942. "Basic Yields of Corporate Bonds, 1900-1942," NBER Chapters, in: Basic Yields of Corporate Bonds, 1900-1942, pages 1-40 National Bureau of Economic Research, Inc.
- McCulloch, J Huston, 1971.
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- Tom Doan, . "RATS program to estimate term structure with cubic splines," Statistical Software Components RTZ00019, Boston College Department of Economics.
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