Interest Rate Term Structure Model Of Fixed Income Product

Term structure models of interest rate is the quantitative relationship between interest rate and Maturity, which have been extensively applied to asset pricing, design of financial goods, hedging, arbitraging and investment decision. This article has first produced the theoretical framework model and procedure, then estimate the parameters of term structure model and make empirical analysis by using fore different kernel functions:Gauss kernel function,Epanechnikov kernel function,fourth and sixth power function.Finally,the maximum-likelihood function is also used to estimate the parameters of single factor and two-factor continuous time interest rate model individully,also give the price of floating rate bond on the basis of interest rate term structure.The main results and methods are as follows:1,In this paper, the nonparametric kernel estimation is used for the term structure model of interest rate, and the empirical study is made based on repurchasing interest rate in Shanghai stock market. The results show that the drift function and the diffusion function are nonlinear.The density functions estimated are similar by the fore kernel functions.The drift functions and the diffusions function are similar with smaller interest rate,when it becomes larger,the estimated results of Gauss kernel and Epanechnikov kernel are close,the estimated results of fourth and sixth power function are close,the latter reflecting the mean reversion adequately.2,From the result of the estimation we can see that it is feasible to estimate the interest rate model by maximum-likelihood method and achieve rather good results. Compared with the single facter model,using two state variables describe certain properties of instantaneous interest rate in two-facter model,it shows more internal difference of instantaneous interest rate.Therefore,more information reflect with more variables fitly introduced. The transaction price of active securities shows more demand and variation of the financial market,on the contrary,the transaction price of the unactive securities may unreasonable.