Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices
Martin M. Andreasen,
Jens H.E. Christensen and
Glenn Rudebusch ()
Journal of Econometrics, 2019, vol. 212, issue 1, 26-46
Nearly all studies that analyze the term structure of interest rates take a two-step approach. First, actual bond prices are summarized by interpolated synthetic zero-coupon yields, and second, some of these yields are used as the source data for further empirical examination. In contrast, we consider the advantages of a one-step approach that directly analyzes the universe of bond prices. To illustrate the feasibility and desirability of the one-step approach, we compare arbitrage-free dynamic term structure models estimated using both approaches. We also provide a simulation study showing that a one-step approach can extract the information in large panels of bond prices and avoid any arbitrary noise introduced from a first-stage interpolation of yields.
Keywords: Extended Kalman filter; Fixed-coupon bond prices; Arbitrage-free Nelson–Siegel model (search for similar items in EconPapers)
JEL-codes: C55 C58 G12 G17 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:212:y:2019:i:1:p:26-46
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