IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fitting Parsimonious Yield Curve Models to Australian Coupon Bond Data

This study uses a unique data set on Australian coupon bonds to test a number of yield curve models. A non-linear least squares technique is employed to directly fit four alternative, zero coupon, forward rate, yield curve models to the data. The four yield curve models tested were two, 4-parameter polynomial curves and two 3-parameter models including a Laguerre function. We show that a fourth order polynomial with the cubic term omitted best fits the data. This preferred model provides good estimates of both the forward and spot rate curves as well as producing volatility structures that accorded with our a priori expectation. The preferred, fourth order polynomial model is used as the basis of a market trading strategy. In this strategy, a model predicted underpriced bonds are purchased and a model predicted overpriced bonds are sold. This strategy is shown to be superior to a random trading strategy. There is however, little evidence of market inefficiency as transaction costs account for any profit generated by the strategy.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.finane.uts.edu.au/research/wpapers/wp51.pdf
Our checks indicate that this address may not be valid because: 500 Can't connect to www.finane.uts.edu.au:80 (Bad hostname). If this is indeed the case, please notify (Duncan Ford)


Download Restriction: no

Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 51.

as
in new window

Length: 17 pages
Date of creation: 01 Sep 1995
Date of revision:
Handle: RePEc:uts:wpaper:51
Contact details of provider: Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.uts.edu.au/about/uts-business-school/finance

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. 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.
  2. David Durand, 1942. "Basic Yields of Corporate Bonds, 1900-1942," NBER Books, National Bureau of Economic Research, Inc, number dura42-1, October.
  3. Vasicek, Oldrich A & Fong, H Gifford, 1982. " Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-48, May.
  4. R. Bhar & C. Chiarella, 1997. "Transformation of Heath?Jarrow?Morton models to Markovian systems," The European Journal of Finance, Taylor & Francis Journals, vol. 3(1), pages 1-26.
  5. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
  6. 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.
  7. McCulloch, J Huston, 1975. "The Tax-Adjusted Yield Curve," Journal of Finance, American Finance Association, vol. 30(3), pages 811-30, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:uts:wpaper:51. 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: (Duncan Ford)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.