Empirical Study On The Yields On Treasury Bonds In The Shanghai Stock Exchange By The Two-Factor Cir Model

With the rate marketization and increasing number of the treasury bonds, the interest rate term structure embedded in the treasury bonds has important implications. The interest rate term structure is the foundation of asset pricing, risk management, and hedging and an effective monetary policy to the central bank. So the study of the interest rate term structure has great meanings. The theory of interest rate term structure falls into two categories:tradition theory and modern static and dynamic theory.The paper starts with analyzing the background and meanings and the research conclusions both home and abroad regarding the interest rate term structure. In the second chapter, the paper makes a detailed introduction of the interest rate term structure theory followed by the accounting of Kalman filter which is used to estimate the parameters of the two-factor CIR model in the third chapter.In the empirical analysis, the spot rates data is derived from the Nelson-Siegel model of static state. By correlation analysis, we can draw a conclusion that the single factor model can not describe the dynamic characteristics of the term structure of interest rates. By factor analysis, we can see that two-factor model is adequate to do it. We can use Kalman filter to process the spot rates data to get the parameters of the two-factor CIR model. Finally, the result of1-year spot rate is not satisfactory while the longer term is more accurate through RMSE analysis. On the whole, the data calculated from the model is very close to the real data. So we can draw the conclusion that the two-factor CIR model is fit to describe the dynamic property of the treasury bonds market in China.