The Study Of Estimation And Application On Chinese Treasury Bond Yield Curve

Term structure of interest rate reflect the association of interest rates which has different maturities.Yield curve is the static depict of term structure of interest rate. Nowadays,all of the financal institutions and supervisors will be in face of more challenge in interest rate when it is determined by market.For the management of interest rate risk and the policy of interest rate,the precise estimation of spot or forward term structure of interest rate is the base of them.The different term structure of interest rate estimated by different institutions through various models will be compared by their pricing accuracy respectively.In the other hand,the risk which is caused by the shift of term structure of interest rate should be alerted,especially for measuring and immunizing the risk derived by non-parallel yield curve shifts.Consider last factors and the fact of our treasury bond market that most kinds of bonds has obvious differences in their daily deal quantity,the paper introduce the modified model and algorithm which estimate Treasury Bond Yield Curve with liquidity difference in common.We add a new index which designed by deal quantity to the weight vector of the old method before minimizing the remanet in our new method.In this way, we can put more weight to the bonds which have large deal quantities,and improve the representive of the Treasury Bond Yield Curve.The term structure of interest rate estimated in new method will represent the rate requested by entire market but not some minorities. Then their pricing errors are compared to judge their precise, which tests the market representative of estimation on the Yield Curve by the two models. Through testing every Wednesday trading data of Shanghai Stock Exchange from January 10th , 2007 to March 10th, 2008, we find that the pricing precise of the Yield Curve estimated by the modified model is higher and has a high fitting accuracy. The results indicate that the Yield Curve estimated with liquidity difference can keep a higher fitting accuracy and has more market representative.On the basis of term structure ,we analyzed the changes of the interest rate by principal component method,and make some researches on the main changes of forms of the rate curve.We find out the non-paralell yield curve shifts can explain a large component(more than 50%).To deal with the risk from non-paralell yield curve shifts,the paper analyzed the management of interest rate risk of commercial bank through duration models.Classic duration models(such as Macauley duration,Fisher-Weil duration)supposed the shift of yield curve is parallel only, which limites their application.Key rate duration model in bond's management can measure and immunize the risk from non-paralell shifts of yield curve better.For commercial bank ,the interest rate sensitivity gap technology and duration technology can consider key rate duration model.The paper analyzed the application of key rate duration in commercial bank in details.