scholarly journals Interest Rate Term Structure Decomposition at the Instrument Level

2016 ◽  
Author(s):  
Brian Barnard
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Structure Decomposition ◽  
Interest Rate Term Structure ◽  
Instrument Level

scholarly journals Interest Rate Term Structure Decomposition: An Axiomatic Structural Approach

2018 ◽  
Vol 6 (1) ◽  
pp. 84
Author(s):  
Brian Barnard
Keyword(s):  
Interest Rate ◽  
Linear Combination ◽  
Term Structure ◽  
Goodness Of Fit ◽  
Optimization Problem ◽  
Structural Approach ◽  
Market Sample ◽  
Structure Decomposition ◽  
Interest Rate Term Structure ◽  
The Relationship

The paper examines an axiomatic structural approach to term structure decomposition. From this perspective, term structure decomposition is modelled as an non-parsimonious optimization problem, with the structure delineated by constraints related to the likely attributes thereof, rather than by a linear combination of splines or functions. The motivation for the model lies in its perceived flexibility or power. Also, the model is seen as a likely candidate to implement issue-level term structure decomposition. Consequently, issue-level term structure decomposition is also briefly introduced. The power of the model is tested on a simulated and market sample. Even though it may go against notions of structure smoothness, the relationship or correlation between structure smoothness, goodness of fit, and systematic/ unsystematic risk is also touched on.

scholarly journals Interest Rate Term Structure Decomposition at the Instrument Level

2019 ◽  
Vol 6 (3) ◽  
pp. 7
Author(s):  
Brian Barnard
Keyword(s):  
Term Structure ◽  
Goodness Of Fit ◽  
Sequential Approach ◽  
Government Bonds ◽  
Bond Valuation ◽  
Term Structures ◽  
Structure Decomposition ◽  
Interest Rate Term Structure ◽  
Free Government ◽  
Instrument Level

The paper examines term structure decomposition at the instrument level – decomposing term structures for issues as well as the portfolio. Three different implementations are stipulated: axiomatic structural approaches, a sequential approach, and a base structure approach. The three different implementations are evaluated against a portfolio of risk-free government bonds. The goodness-of-fit and smoothness properties of instrument-level term structure decomposition are also considered. The conclusion points to remaining gaps in theory regarding instrument-level term structure decomposition, and considers areas of application – typically bond valuation.

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