Journal of Finance Vol. 45 No. 2 1990
The Structure of Spot Rates and Immunization.
Abstract
Empirical studies of the modern theories of bond pricing typically choose proxies for the state variables in a rather arbitrary fashion. This paper empirically analyzes the question of the optimal spot rates to use as state variables. The authors' findings indicate that the four-year spot rate serves as the best proxy in the one-state-variable model. In the case of the two-state-variables model, the six-year rate and eight-month rate are identified as best. Tests of the out-of-sample prediction ability indicate that their model is superior to F. R. Macaulay's duration model and alternative proxies for state variables.
- Volume
- 45
- Issue
- 2
- Pages
- 629-42
- Sources
- bibtex:phds-export.bib