Analysis Of Treasury Bond Pricing Based On Term Structure Of Interest

Treasury bond is one of the most important primary financial instruments on the financial market and is the most talked about investment products. It is the pricing foundation of the interest derivatives and other financial instruments. As important component of monetary policy and fiscal policy, it affects the transmission mechanism and efficiency of both policies directly. Thus the study of pricing of treasury bond is very significant. Interest is a most important variable in economics. The nature of the risk-free interest rate change with the term change is called the term structure of interest. The term structure of interest of treasury bond does very important to bond pricing.The paper conducts research on the term structure of interest rate and treasury bond pricing. The paper firstly introduces treasury bond and Chinese treasury bond market, and points out that treasury bond market will be an important fact in the development of the financial markets. As the treasury bond is extremely sensitive finance production to the interest rate, the term structure of interest rate play the decisive role to the bond pricing. The second part of this paper introduces the traditional theories and modern theories on term structure of interest rate and then analyzes the advantages and limitations of each theory. Treasury bond is a risk investment, there are many factors that makes the expected return may be reduced. Treasury bond is also a commodity, its price is generally determined by the relationship of supply and demand, but there are many factors that impact the supply and demand. The third part of this paper analyzes the risk of treasury bond and the factors that impact the treasury bond pricing. Nonparametric smoothing method is an efficient regression method which fits data smoothly. In the fourth part, the paper has conducted an empirical study. The paper estimates term structure of interest rate in China using several treasuries in Shanghai Security Exchanges by using three ways. Finally the paper points out the shortcoming of this paper and the next research direction.The innovation of this paper is fitting yield to maturity data by nonparametric smoothing method to achieve good results when we don't know much about the regression function.