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

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • Martin M. Andreasen
  • Jens H.E. Christensen, Federal Reserve Bank of San Francisco
  • ,
  • Glenn D. Rudebusch, Federal Reserve Bank of San Francisco

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.

Original languageEnglish
JournalJournal of Econometrics
Volume212
Issue1
Pages (from-to)26-46
Number of pages21
ISSN0304-4076
DOIs
Publication statusPublished - Sep 2019

    Research areas

  • Arbitrage-free Nelson–Siegel model, Extended Kalman filter, Fixed-coupon bond prices

See relations at Aarhus University Citationformats

ID: 163402875