Modeling Chinese Term Structure Of Interest Rates With Non-uniform Cubic B-Splines

Using non-uniform cubic B-Splines as fitting functions, the term structure ofinterest rates of Chinese treasury bonds is modeled with the daily prices ofinterest-bearing treasury bonds in Shanghai Bond Exchange, and displayed bydiscount function, yield curve and instantaneous forward interest rate curve. Withthe method of equal-cash-flow but not the traditional method of equal-bonds, theknots vector of spline basis is determined. The principle of equal-cash-flow is tomake the cashes located in each interval equal. The knots vector determined by thismethod can reflect the effect of time and mount of interest payment better.Empirical research proves that the result of this method is consistent witheconomical principles and the estimation error of Bonds’ prices is smaller.