Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices

Martin M. Andreasen; Jens H.E. Christensen; Glenn D. Rudebusch

doi:10.1016/j.jeconom.2019.04.019

Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices

Martin M. Andreasen, Jens H.E. Christensen^*, Glenn D. Rudebusch

^*Corresponding author af dette arbejde

Institut for Økonomi - CREATES

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

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Abstract

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.

Originalsprog	Engelsk
Tidsskrift	Journal of Econometrics
Vol/bind	212
Nummer	1
Sider (fra-til)	26-46
Antal sider	21
ISSN	0304-4076
DOI	https://doi.org/10.1016/j.jeconom.2019.04.019
Status	Udgivet - sep. 2019

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10.1016/j.jeconom.2019.04.019

Term_Structure_Analysis_with_Big_Data_AM_2019Accepteret manuskript, 820 KBLicens: CC BY-NC-ND

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title = "Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices",

abstract = "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 = "Arbitrage-free Nelson–Siegel model, Extended Kalman filter, Fixed-coupon bond prices",

author = "Andreasen, {Martin M.} and Christensen, {Jens H.E.} and Rudebusch, {Glenn D.}",

year = "2019",

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doi = "10.1016/j.jeconom.2019.04.019",

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journal = "Journal of Econometrics",

issn = "0304-4076",

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TY - JOUR

T1 - Term Structure Analysis with Big Data

T2 - One-Step Estimation Using Bond Prices

AU - Andreasen, Martin M.

AU - Christensen, Jens H.E.

AU - Rudebusch, Glenn D.

PY - 2019/9

Y1 - 2019/9

N2 - 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.

AB - 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.

KW - Arbitrage-free Nelson–Siegel model

KW - Extended Kalman filter

KW - Fixed-coupon bond prices

UR - http://www.scopus.com/inward/record.url?scp=85065035954&partnerID=8YFLogxK

U2 - 10.1016/j.jeconom.2019.04.019

DO - 10.1016/j.jeconom.2019.04.019

M3 - Journal article

AN - SCOPUS:85065035954

SN - 0304-4076

VL - 212

SP - 26

EP - 46

JO - Journal of Econometrics

JF - Journal of Econometrics

IS - 1

ER -

Term Structure Analysis with Big Data: One-Step Estimation Using Bond Prices

Abstract

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