Construction of Zero-Coupon Yield Curve From Coupon Bond Yield Using Australian Data

Ram Bhar and Carl Chiarella
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Ram Bhar: School of Banking and Finance, University of New South Wales

No 70, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This paper briefly surveys the various approaches to modelling the zero coupon yield curve is the starting point for much finance research. The method adopted here for the Australian Treasury bond data is based upon polynomial spline fitting, but with the constraint that the long end of the term structure is stable. This approach has also been successfully applied to the Danish bond market (Tanggaard and Jakobsen (1988)). The forward rate curve then becomes the important input data for the modelling of the term structure of interest rates and pricing of interest rate contingent claims using the Heath-Jarrow-Morton (1992) model.

Pages: 19 pages
Date: 1996-11-01
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