, Volume 63, Issue 1, pp 99–122

Flexible Term Structure Estimation: Which Method is Preferred?


DOI: 10.1007/s00184-005-0017-8

Cite this article as:
Jeffrey, A., Linton, O. & Nguyen, T. Metrika (2006) 63: 99. doi:10.1007/s00184-005-0017-8


We show that the recently developed non-parametric procedure for fitting the term structure of interest rates developed by Linton, Mammen, Nielsen, and Tanggaard (J Econ 105(1):185–223, 2001) overall performs notably better than the highly flexible McCulloch (J Finon 30:811–830, 1975) cubic spline and Fama and Bliss (Am Econ Rev 77:680–692, 1987) bootstrap methods. However, if interest is limited to the Treasury-bill region alone then the Fama–Bliss method demonstrates superior performance. We further show, via simulation, that using the estimated short rate from the Linton–Mammen–Nielsen–Tanggaard procedure as a proxy for the short rate has higher precision then the commonly used proxies of the one and three month Treasury-bill rates. It is demonstrated that this precision is important when using proxies to estimate the stochastic process governing the evolution of the short rate


BondsFixed IncomeHit rateKernal estimationNonparametric

Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Yale School of ManagementNew HavenUSA
  2. 2.Department of EconomicsLondon School of EconomicsLondonUK
  3. 3.Bank of America SecuritiesSan FranciscoUSA