Study On The Term Structure Of Interest Rates

Nearly three decades, both the East and West, marketization is the main content of economic reform; almost all countries participate in market-oriented reforms. With the development of modern economy, market-oriented financial system must be included in the market-oriented reforms. The marketization of interest rates is the core of financial market reform. Especially in the economic transformation period, the marketization of interest rates plays a major role in the orderly flow of rational resource.The market information provides the basis for pricing the derivative products and risk management. As the term structure of interest rates is widely applied in the bond portfolio and interest rate risk management, the more message market interest rates reflect,the higher degree of the market, so that can promote the rational flow of resources and the development of China's financial market.Therefore, this research studies the term structure of interest rates.The part 1 is introduction; this part describes the research background and research significance. The part 2 is literature review, this part does a review of the development of interest rate theories and studies, details the state of the interest rate term structure and empirical findings; reviews the modern dynamic rate theories in detail, compares the differences, internal linkages and shortcomings of these models, this part also introduces the latest empirical results at home and abroad.Interest rate term structure can be divided into static state and dynamic state, static method is using the specific mathematical function to describe the yield curve. The part 3 describes the rate of static fitting, introduces the Nelson-Siegel model,focusing on the model parameter estimation method——Modified Newton-Gauss Law. Through the empirical research, this study find that Nelson-Siegel model depicts the static bond yield curve, the error is very small, it can accurately describes the bond yields.Static model can not provide the effective forecasting of bond yields, for the volatility of interest rates, which needs dynamic model. The part 4 is the dynamic interest rate theory, this part describes the basic method of bond pricing, provides a theoretical basis for term structure of interest rates'further research. This part focuses on the three-factor model in the Affine Term Structure Model, describes the dynamic term structure model of the estimation method-Kalman filter in detail, and derives the conditional expectation and conditional variance factor calculation results in the empirical part. The empirical study shows that the single factor model is worse than the three factor model in explaining the dynamic changes in interest rates; different fitting effect of different market risk price hypothesis in interest rates. The part 5 is the conclusions of this study.Economists have proposed a number of interest rate models, from static to dynamic term structure of interest rates, from the equilibrium model to the no-arbitrage model. Facing the numerous interest rate models, we need to choose the appropriate model according to the different demand in practice.Although all stages of the study sought to be rigorous, but for some reasons, this study still have some limitations.