Flexible Term Structure Estimation: Which Method is Preferable?
We 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.
When requesting a correction, please mention this item's handle: RePEc:fmg:fmgdps:dp513. See general 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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.