Interest Rate Term Structure Theory, Empirical Applications

At Dec 1st 2006, China's finance service industry will open due to the promises about the entry WTO. But take Banks as a representative finance industry, we could find the truth that domestic finance institutions have little competition capacity, lots of bad debts and hidden risks, and the hole industry face lots of pressure. Proceed from the pressure, China ultimately take reformation to the system of banks, exchange rate, and interest rates. Floating interest rate will make essential infection to financial resource collocating. At Jul 2005, China's central bank announces that china will put floating exchange rate into practice, which based on market supplies and demands. In past several years, China's bond market has get far-reaching improvements, and products innovations emerge in endlessly. The research of term structure of interest rates can give the pricing foundation of the capital market, and promote bond market's development, enrich central bank's control instruments, boost interest rate's floating, advance finance institutions'abilities of risk control, and at last make the financial system more steady.The thesis started from introducing some relevant concept of term structure, some interest rate determining theories, traditional theories of term structure, and the research actuality of modern theories of term structure, which includes static and dynamic research. And then, the thesis import a thrice-polynomial technology to depict the yield curve of Shanghai stork exchange market and gained the yield curve chart. Under one factor model hypothesis, deduce the bond pricing formulae. Based on 1945 data of buy-back rate in banking market, the thesis use OLS and GMM estimation technologies to estimate the parameters of Vasicek model, CIR model, and CKLS model, and verify which model can explain the China market's short rate's wave. At last, the thesis make use of the term structure research into application of supervise, which is mainly focus on monetary policy and market, which is mainly focus on arbitrage and option pricing.