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Interest Rate Term Structure Decomposition at the Instrument Level

Brian Barnard

Applied Economics and Finance, 2019, vol. 6, issue 3, 7-27

Abstract: The paper examines term structure decomposition at the instrument level ¨C decomposing term structures for issues as well as the portfolio. Three different implementations are stipulated: axiomatic structural approaches, a sequential approach, and a base structure approach. The three different implementations are evaluated against a portfolio of risk-free government bonds. The goodness-of-fit and smoothness properties of instrument-level term structure decomposition are also considered. The conclusion points to remaining gaps in theory regarding instrument-level term structure decomposition, and considers areas of application ¨C typically bond valuation.

Keywords: term structure decomposition; instrument valuation; bond valuation (search for similar items in EconPapers)
JEL-codes: R00 Z0 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:rfa:aefjnl:v:6:y:2019:i:3:p:7-27