Two-Factor Affine Term Structure Model of Interest Rates for Chinese Government Bond Pricing

Author

Wang, Xiaoguang ; Zhou, Rongxi

Author_Institution

Sch. of Econ. & Manage., Beijing Univ. of Chem. Technol., Beijing, China

fYear

2010

fDate

13-15 Aug. 2010

Firstpage

187

Lastpage

190

Abstract

Term structure of interest rates has played an important role in pricing of fixed-income securities. In this paper, the prices of Chinese Government Bond (CGB) are analyzed firstly based on the famous two-factor affine term structure model, namely Longstaff-Schwartz model. First, by using the Kalman filter method, we estimate the parameters of the model, and obtain the price of CGB by Monte Carlo stimulation. Finally, the pricing results of CGB are compared with Vasicek model and Cox, Ingersoll and Ross model. The results show the two-factor affine model has the high precision.

Keywords

Kalman filters; Monte Carlo methods; economic indicators; government; pricing; Chinese government bond pricing; Kalman filter method; Longstaff-Schwartz model; Monte Carlo stimulation; Vasicek model; fixed income securities; interest rates; two factor affine term structure model; Analytical models; Biological system modeling; Economic indicators; Finance; Predictive models; Pricing; Stochastic processes; Affin term structure models; Chinese Government bond pricing; Kalman filter; Monte Carlo simulation;

fLanguage

English

Publisher

ieee

Conference_Titel

Business Intelligence and Financial Engineering (BIFE), 2010 Third International Conference on

Conference_Location

Hong Kong

Print_ISBN

978-1-4244-7575-9

Type

conf

DOI

10.1109/BIFE.2010.52

Filename

5621757