Term Structure Estimation in Illiquid Markets

Subramanian, K (2001) Term Structure Estimation in Illiquid Markets. The Journal of Fixed Income, 11 (1). pp. 77-86.

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Abstract

Government debt markets in the developing economies are generally less liquid than in developed ones. There are many fewer liquid on the run securities. Yield curve estimation must therefore include illiquid securities in the data set. Pooling liquid and illiquid securities to estimate the term structure leads to errors in the estimation methodology. The author suggests a method to circumvent this problem, proposing the use of liquidity-weighted objective functions for parameter estimation. The liquidity of individual securities is modeled using observable quantities like number and volume of trades in a security. The model is demonstrated using data from the Indian government bond market.

Affiliation: Indian School of Business
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Subramanian, K
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Item Type: Article
Additional Information: The research paper was published by the author with the affiliation of The University of Chicago.
Uncontrolled Keywords: Illiquid Markets, Term Structure, Developing economies
Subjects: Finance
Depositing User: Ilayaraja M
Date Deposited: 08 Jun 2019 17:01
Last Modified: 09 Jun 2019 19:11
URI: http://eprints.exchange.isb.edu/id/eprint/1036
Publisher URL: https://doi.org/10.3905/jfi.2001.319292
Publisher OA policy: https://jfi.iijournals.com/journal-information
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