A Note on the Bias of using Futures Rates as a Proxy for the Instantaneous Forward Rate
The note shows that there is a non-negligible bias in using the futures rates as a proxy for the instantaneous forward rates in the estimation of forward rate models. It is therefore desirable to derive the evolution of observable rates, then use the distributional properties of this evolution to do the estimation. In a general case where these properties are hard to obtained, a filtering technique is required.
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World Scientific Publishing Co. Pte. Ltd..
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