RT Journal Article
SR Electronic
T1 Term Structure Estimation in Illiquid Markets
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 77
OP 86
DO 10.3905/jfi.2001.319292
VO 11
IS 1
A1 K.V. Subramanian
YR 2001
UL https://pm-research.com/content/11/1/77.abstract
AB 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.