Using Kalman Filter Approach to Simulate and Estimate the Term Structure of Interest Rates in Shanghai Stock Exchange
Fu-Tie Song · Management Sciences in China · 2006
The objective of this paper is to simulate and estimate the nominal term structure of interest rates in Shanghai Stock Exchange,basing on the multi-factor versions of the Cox-Ingersoll-Ross(CIR) and utilizing Kalman Filter approach.Zero-coupon interest rate is gained by bootstrapping,employing weekly trade data of governments debt from 27 June 1997-25 March 2002 in Shanghai Stock Exchange(SSE).Multi-factor models are necessary to characterize the changing shape of the yield curve over time,and the statistical tests support the case for four factor models.The empirical results indicate that the yield curve of the government bond in SSE looks like a hump.There are not significant differences between short-term interest rates and long term rates,and shape of the yield curve of government′s debt in SSE is distorted.It also indicates that the reasonable term structure of interest rates is not formed in SSE.