Indian G-Sec Market II: Anatomy of Short Rates
This 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.
|Date of creation:||18 Dec 2010|
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- McCulloch, J Huston, 1971.
"Measuring the Term Structure of Interest Rates,"
The Journal of Business,
University of Chicago Press, vol. 44(1), pages 19-31, January.
- Tom Doan, "undated". "RATS program to estimate term structure with cubic splines," Statistical Software Components RTZ00019, Boston College Department of Economics.
- 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. Full references (including those not matched with items on IDEAS)
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