Cubic Spline

Nelson Siegel

Do you see any major difference between the two models? Which one seems to be better than the other and why?

Compare two bond prices and provide your findings.

1000 Maturity value Rate Semiannual 3% u u Maturity Spot rate YTM CF DCF Spot DCF YTM 0.50 2.47% 3.18% 15 14.82 14.77 1.00 2.66% 3.18% 15 14.61 14.53 1.50 2.61% 3.18% 15 14.43 14.31 2.00 2.89% 3.18% 15 14.16 14.08 2.50 2.76% 3.18% 15 14.01 13.86 3.00 2.97% 3.18% 15 13.73 13.65 3.50 2.89% 3.18% 15 13.57 13.43 4.00 2.95% 3.18% 15 13.34 13.22 4.50 3.00% 3.18% 15 13.12 13.01 5.00 3.04% 3.18% 15 12.90 12.81 5.50 3.10% 3.18% 15 12.67 12.61 6.00 3.14% 3.18% 15 12.44 12.41 6.50 3.17% 3.18% 15 12.22 12.22 7.00 3.13% 3.18% 15 12.07 12.03 7.50 3.23% 3.18% 15 11.79 11.84 8.00 3.26% 3.18% 15 11.58 11.65 8.50 3.28% 3.18% 15 11.38 11.47 9.00 3.30% 3.18% 15 11.17 11.29 9.50 3.31% 3.18% 15 10.98 11.12 10.00 3.19% 3.18% 1015 739.64 740.37 Total 984.62 984.68 7 of squared of residuals Mat Maturity val Rate Semianual 1000 3% . 1 Spot rate YTM CF 0.50 2.47% 3.18% 1.00 2.66% 3.18% 1.50 2.60% 3.18% 2.00 2.89% 3.18% 2.50 2.74% 3.18% 3.00 2.97% 3.18% 3.50 2.85% 3.18% 4.00 2.91% 3.18% 4.50 2.95% 3.18% 5.00 3.04% 3.18% 5.50 3.04% 3.18% 6.00 3.08% 3.18% 6.50 3.12% 3.18% 7.00 3.13% 3.18% 7.50 3.19% 3.18% 8.00 3.22% 3.18% DCF Spot DCF YTM 15 14.82 14.77 15 14.61 14.53 15 14.43 14.31 15 14.16 14.08 15 14.01 13.86 15 13.73 13.65 15 13.58 13.43 15 13.37 13.22 15 13.15 13.01 15 12.90 12.81 15 12.70 12.61 15 12.48 12.41 15 12.26 12.22 15 12.07 12.03 15 11.83 11.84 EE 1 1 PP 15 11.62 11.65 8.50 3.18% 15 11.41 3.24% 3.27% 3.29% 11.47 11.29 9.00 15 11.20 3.18% 3.18% 9.50 15 R 11.00 11.12 10.00 3.19% 3.18% 1015 739.64 740.37 Total 984.99 984.68 1000 Maturity value Rate Semiannual 3% u u Maturity Spot rate YTM CF DCF Spot DCF YTM 0.50 2.47% 3.18% 15 14.82 14.77 1.00 2.66% 3.18% 15 14.61 14.53 1.50 2.61% 3.18% 15 14.43 14.31 2.00 2.89% 3.18% 15 14.16 14.08 2.50 2.76% 3.18% 15 14.01 13.86 3.00 2.97% 3.18% 15 13.73 13.65 3.50 2.89% 3.18% 15 13.57 13.43 4.00 2.95% 3.18% 15 13.34 13.22 4.50 3.00% 3.18% 15 13.12 13.01 5.00 3.04% 3.18% 15 12.90 12.81 5.50 3.10% 3.18% 15 12.67 12.61 6.00 3.14% 3.18% 15 12.44 12.41 6.50 3.17% 3.18% 15 12.22 12.22 7.00 3.13% 3.18% 15 12.07 12.03 7.50 3.23% 3.18% 15 11.79 11.84 8.00 3.26% 3.18% 15 11.58 11.65 8.50 3.28% 3.18% 15 11.38 11.47 9.00 3.30% 3.18% 15 11.17 11.29 9.50 3.31% 3.18% 15 10.98 11.12 10.00 3.19% 3.18% 1015 739.64 740.37 Total 984.62 984.68 7 of squared of residuals Mat Maturity val Rate Semianual 1000 3% . 1 Spot rate YTM CF 0.50 2.47% 3.18% 1.00 2.66% 3.18% 1.50 2.60% 3.18% 2.00 2.89% 3.18% 2.50 2.74% 3.18% 3.00 2.97% 3.18% 3.50 2.85% 3.18% 4.00 2.91% 3.18% 4.50 2.95% 3.18% 5.00 3.04% 3.18% 5.50 3.04% 3.18% 6.00 3.08% 3.18% 6.50 3.12% 3.18% 7.00 3.13% 3.18% 7.50 3.19% 3.18% 8.00 3.22% 3.18% DCF Spot DCF YTM 15 14.82 14.77 15 14.61 14.53 15 14.43 14.31 15 14.16 14.08 15 14.01 13.86 15 13.73 13.65 15 13.58 13.43 15 13.37 13.22 15 13.15 13.01 15 12.90 12.81 15 12.70 12.61 15 12.48 12.41 15 12.26 12.22 15 12.07 12.03 15 11.83 11.84 EE 1 1 PP 15 11.62 11.65 8.50 3.18% 15 11.41 3.24% 3.27% 3.29% 11.47 11.29 9.00 15 11.20 3.18% 3.18% 9.50 15 R 11.00 11.12 10.00 3.19% 3.18% 1015 739.64 740.37 Total 984.99 984.68