Fitting the Term Structure of Interest Rates in Illiquid Market: Taiwan Experience

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Title:	Fitting the Term Structure of Interest Rates in Illiquid Market: Taiwan Experience
Authors:	Chou, Jian-Hsin;Su, Yung-Sheng;Tang, Hui-wen;Chen, Chen-Yu
Contributors:	淡江大學保險學系
Keywords:	term structure of interest rates;Nelson-Siegel Model;liquidity constraint
Date:	2009-12-01
Issue Date:	2011-10-15 13:25:48 (UTC+8)
Publisher:	Business Perspectives
Abstract:	This paper aims to compare the fitting performance of term structure estimation for Taiwan Government Bonds market,which is considered as an illiquid bond market with a low trading volume, based on the Nelson and Siegel, Extended Nelson-Siegel Model and Nelson-Siegel-Svensson Model (see Nelson and Sigel, 1987; Bliss, 1996; Svensson, 1994).The empirical results indicate that the fitting performance in accuracy for Nelson-Siegel-Svensson Model is better than that of Extended Nelson-Siegel Model, and the Extended Nelson-Siegel Model is better than that of Nelson-Siegel Model. It means that adding more parameters will obtain a better capability in describing the shape of the term structure. Also, compared with the case of which the liquidity constraint is not taken into consideration, these three models will have a better fitting performance if the liquidity constraint is considered.
Relation:	Investment Management and Financial Innovations 6(1), pp.101-116 【EconLit】
Appears in Collections:	[Graduate Institute & Department of Insurance Insurance] Journal Article

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