Please use this identifier to cite or link to this item: http://hdl.handle.net/11718/24844
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dc.contributor.authorVirmani, Vineet
dc.contributor.authorKumar, Sudarshan
dc.date.accessioned2021-12-15T06:05:09Z
dc.date.available2021-12-15T06:05:09Z
dc.date.issued2021-12-12
dc.identifier.citationKumar, S., & Virmani, V. (2021). Term structure estimation with liquidity-adjusted Ane Nelson Siegel model: A nonlinear state space approach applied to the Indian bond market. Applied Economics, 1-22. doi:10.1080/00036846.2021.1967866en_US
dc.identifier.urihttps://doi.org/10.1080/00036846.2021.1967866
dc.identifier.urihttp://hdl.handle.net/11718/24844
dc.description.abstractEfficient term structure estimation in emerging markets is difficult not only because of overall lack of liquidity, but also because of the concentration of liquidity in a few securities. Using the arbitrage-free Affine Nelson-Siegel model, we explicitly incorporate this phenomenon using a proxy for liquidity based on observable data in the bond pricing function and estimate the term structure for Indian Government bond markets in a nonlinear state space setting using the Unscented Kalman Filter. We find strong empirical evidence in support of the extended model with both i) a better in-sample fit to bond prices, and ii) the likelihood ratio test rejecting the restrictions assumed in the standard AFNS specification. In an alternative specification, we also model liquidity as a latent risk factor within the AFNS framework. The estimated latent liquidity factor is found to be strongly correlated with the standard market benchmarks of overall liquidity and the India VIX index.en_US
dc.language.isoenen_US
dc.publisherRoutledge Publishingen_US
dc.relation.ispartofApplied Economicsen_US
dc.subjectTerm structureen_US
dc.subjectIndian Government bonden_US
dc.subjectLiquidityen_US
dc.subjectNon-linear state-spaceen_US
dc.subjectUnscented Kalman filteren_US
dc.titleTerm structure estimation with liquidity-adjusted Ane Nelson Siegel model: A nonlinear state space approach applied to the Indian bond marketen_US
dc.typeArticleen_US
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