| As a fundamental determinant economic variable, the short-term interest rate directly affects the pricing models of financial products and the effective risk management. So many term structure models of interest rates have been developed and estimated by academic researchers. Unfortunately, much of the existing research is confined to the developed countries, mainly to UK or US. Hence the need to have further international evidence on the subject is compelling. So my thesis provide an analysis of the estimation of term structure models for China. Firstly, I develop a common structure of single-factor term structure models of interest rates. Under this structure, I analyzed Vasicek, CIR and Merton models. In the remaining part, I discuss how to estimate term structure models of interest rates. I divide the interest rate process into the expected changes in short-term interest rates and the volatility of the short rate. At first, I focus on the drift or equivalently, the expected change. Secondly, I investigate the diffusion function that defines the volatility of the short rate as a function of the level of the short rate. Beyond the level effect, I examine the GARCH model, the jump-diffusion model, the regime-switching model and their implication for China financial market. Then, I incorporate the level model and the GARCH model to a compound model. Based on this model, considering the characteristics of China financial market, I develop a new interest rate process to estimate the term structure models. I use Gauss language and Chinese repurchasing rates of government bonds to do the empirical research. The results show that, the level effect and GARCH effect that are common in other international studies also exist in China. But the behavior of Chinese interest rate demonstrates some other characteristics, such as the mean reverting, the non-linear drift, the moving average process and the information effect. |
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