Two-Factor Affine Term Structure Model of Interest Rates for Chinese Government Bond Pricing

摘要

Term structure of interest rates has played an important role in pricing of fixed-income securities. In this paper, the prices of Chinese Government Bond (CGB) are analyzed firstly based on the famous two-factor affine term structure model, namely Longstaff-Schwartz model. First, by using the Kalman filter method, we estimate the parameters of the model, and obtain the price of CGB by Monte Carlo stimulation. Finally, the pricing results of CGB are compared with Vasicek model and Cox, Ingersoll and Ross model. The results show the two-factor affine model has the high precision.