We examine several alternative models of the UK gilt yield curve using daily data for the period 12 July 1996–10 February 2010. We select the best models according to two criteria: low out of sample errors in pricing bonds and low curvature of the implied forward rate curve function. We suggest additions to some of the models that significantly improve their performance. Some of the new models out perform those typically used by the central banks. In particular this paper suggests that the model used by the Canadian Central Bank which both outperforms other models and is particularly easy to estimate, is well suited to the UK gilt market.

The nature and extent of intertemporal adjustments across stock index futures and cash markets in the UK are investigated in terms of partial adjustment factors. This approach affords the means of establishing both differential price movements in these markets and, additionally, providing a readily interpretable measure of the degree of such relative price movements. Analytic expressions are developed for jointly measuring the partial adjustment factors in cash and futures markets using a partial adjustment with noise model. The measures are adjusted for non-synchronous trading and asymptotic sampling variances derived. Adjustment factors are estimated using daily data over the period 1984–1992, with differencing intervals ranging from one to thirty days. Price adjustments were found to be fuller in futures markets, particularly over shorter differencing intervals. Corrections for non-synchronous effects in the cash market increased the magnitude of price adjustment, as did the exclusion of data from the 1987 crash period.

The basis in stock index futures markets is analytically and empirically studied in this paper within a no-arbitrage/cost of carry framework. Explanatory power improved when the implications of the U.K. Stock Exchange settlement system were introduced into the modelling process and, until recently, with the maturity of the market. Evidence indicating the presence of non-synchronicities between the cash and futures markets was found. strong evidence for tax effects upon the basis was not found to be present in the data analysed. Statistically significant relationships between basis mispricing and volume and volatility were found.