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Interest Rate Term Structure Estimation with Exponential Splines: A Note
Author(s) -
SHEA GARY S.
Publication year - 1985
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1985.tb04952.x
Subject(s) - spline (mechanical) , mathematics , exponential function , vasicek model , exponential polynomial , smoothing spline , polynomial , box spline , term (time) , b spline , exponential growth , exponential family , mathematical analysis , statistics , spline interpolation , interest rate , physics , structural engineering , quantum mechanics , monetary economics , engineering , economics , bilinear interpolation
Vasicek and Fong [11] developed exponential spline functions as models of the interest rate term structure and claim such models are superior to polynomial spline models. It is found empirically that i) exponential spline term structure estimates are no more stable than estimates from a polynomial spline model, ii) data transformations implicit in the exponential spline model frequently condition the data so that it is difficult to obtain approximations in which one can place confidence, and iii) the asymptotic properties of the exponential spline model frequently are unrealistic. Estimation with exponential splines is no more convenient than estimation with polynomial splines and gives substantially identical estimates of the interest rate term structure as well.