Modeling Individual US T- Bond Prices

Hiroshi Tsuda and Takeaki Kariya

Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Kariya and Tsuda (1994) proposed the TDM (Time Dependent Markov) bond pricing model and showed that it is of great in-sample performance. In less than 0.5 yen in each month over 12 years, implying that the error rate is less than 0.5%. In addition, Kariya and Tsuda (1996) demonstrated the significant predictive power of the model for indeividual bond prices of JG bonds. In this pper, the TDM model is applied to US-T (Treasury) bond and note data, and the in-sample performance for the US T-bonds is shown to be greater than that of JG bonds. Further the predictive performance of individual prices and returns is as good as that of JG bonds. Hence for the US T-bonds, the TDM model will be a very useful model for construction of bond portfolios and bond trading in practice.

Keywords: Randam discount function; time-dependent Markov model for pricing individual US T-bonds (search for similar items in EconPapers)
Date: 1998-02
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:a345

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