A Model for Fitting the Yield Curve Based on a Continuous Penalty Function

This paper establishes a model to fit the yield curve of interest rate. Our research bases on the cubic B- spline function, puts a penalty on the objective function, and then develops a fitting model on the yield curve of SEE T-bonds. We set penalty function by a continuous function, and use second difference operator to improve the computation efficiency. The model is simple for fitting the spot rate and the forward rate, performances good in accuracy and smoothness, and can be an effective method for estimating the term structure of China.