The zero coupon yield curve is one of the most fundamental tools in finance and is essential in the pricing of various fixed-income securities. Zero coupon rates are not observable in the market for a range of maturities. Therefore, an estimation methodology is required to derive the zero coupon yield curves from observable data. If we deal with approximations of empirical data to create yield curves it is necessary to choose suitable mathematical functions. We discuss the following methods: the methods based on cubic spline functions, methods employing linear combination of the Fourier or exponential basis functions and the parametric model of Nelson and Siegel. The current mathematical apparatus employed for this kind of approximation is outlined. In order to find parameters of the models we employ the least squares minimization of computed and observed prices. The theoretical background is applied to an estimation of the zero-coupon yield curves derived from the Czech coupon bond market. Application of proper smoothing functions and weights of bonds is crucial if we want to select a method which performs best according to given criteria. The best performance is obtained for Bspline models with smoothing.
| Identifer | oai:union.ndltd.org:nusl.cz/oai:invenio.nusl.cz:71673 |
| Date | January 2008 |
| Creators | Hladíková, Hana |
| Contributors | Radová, Jarmila, Pelikán, Jan, Onder, Štěpán |
| Publisher | Vysoká škola ekonomická v Praze |
| Source Sets | Czech ETDs |
| Language | Czech |
| Detected Language | English |
| Type | info:eu-repo/semantics/doctoralThesis |
| Rights | info:eu-repo/semantics/restrictedAccess |
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