Modeling term-structure of yields in SSE with two-factor CIR model
Zhang Guo-qing · Journal of systems engineering · 2005
With the monthly data of term structures in the Shanghai stock exchange(SSE) from January 1997 to April 2002,and making use of Kalman filter and maximum likelihood estimation approaches,continuous-time two-factor CIR model is estimated.Empirical study indicates that the two-factor CIR model can model the relative changes of the term structures very well.But it can not fully reflect the predictability of the bond excess returns.The predicting errors of the model for yield curves have obvious serial correlation.It is concluded that the estimated CIR model can be used to price bonds in the SSE,but it will cause some error when it is used to predict the change of yield curves.