Princeton University Library Catalog

Term Structure Estimation for U.S. Treasury and Corporate Bond Yields and Analysis of Credit Spreads

Ma, Xingchen [Browse]
Senior thesis
Shkolnikov, Mykhaylo [Browse]
Princeton University. Department of Operations Research and Financial Engineering [Browse]
Class year:
68 pages
Summary note:
Yield is one of the most important features of fixed income products. In this paper, we estimate term structure of both U.S. treasury bonds and corporate bonds, and find the relationship between credit spread and interest rate. In order to fit yield curves of treasury and corporate bonds, we use Nelson-Siegel model and its variations proposed by Xiao (2001). Specifically, we fit yearly yield curves for U.S. treasury bonds from year 1985 to 2015, providing term structure estimation for the recent untested years. Furthermore, we use index data for corporate bonds and find out that the exponential polynomial model does not fit corporate bonds as well as it fits treasury bonds, which leads us to further research in the relationship of credit spread and interest rate. Our results can be used to compute historical yields and forecast future yield curves.