Comparative Study On The Term Structure Of Interest Rate Of Government Bond In China

Term Structure of Interest Rates, also known as Yield Curve reflects the relationship between interest rates of different maturities. It is the basis for the design of financial products, asset pricing, arbitrage and speculation, hedging and risk management, so the term structure of interest rates has been a very important research topic in the field of financial engineering. With the accelerated pace of China’s market-oriented interest rate and the evolving of bond markets, the scientific construct of the term structure of interest rates has important theoretical value and practical significance.The article first introduces the three traditional theories of the term structure of interest rates, and then introduces some classic static interest rate term structure models and dynamic interest rate term structure models, and analyzes the advantages and disadvantages of these theories. In the article, we improve the third-order polynomial spline function model and the NSS model, and compare the fitted result. On one hand, we argue that if the compensatory period t begins with0instead of1, it is more suitable for the actual market; on the other hand, considering the effects of the interest rate and the liquidity of Treasury prices, in this paper, we introduce a new weight coefficient ωi to construct an minimize objective function, which can make the yield curve fitting out more close to reality. Finally, we use the two models to analyze the22bond date of the Shanghai Stock Exchange and obtain the interest rate term structure of Shanghai Stock Exchange. According to comparing the fitted results between the improved third-order polynomial spline function model and the NSS model, we can get the conclusion that the NSS model can fit China’s Term Structure of Interest Rate well.