Can the choice of interpolation method explain the difference between swap prices and futures prices?

Brown, Rob and Fang, Victor 2005, Can the choice of interpolation method explain the difference between swap prices and futures prices?, Accounting and finance, vol. 45, no. 2, pp. 199-216.

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Title Can the choice of interpolation method explain the difference between swap prices and futures prices?
Author(s) Brown, Rob
Fang, Victor
Journal name Accounting and finance
Volume number 45
Issue number 2
Start page 199
End page 216
Publisher Wiley - Blackwell Publishing Asia
Place of publication Richmond, Vic.
Publication date 2005-07
ISSN 0810-5391
1467-629X
Keyword(s) bank bill futures
interest rate swaps
interpolation
Summary The standard model linking the swap rate to the rates in a contemporaneous strip of futures interest rate contracts typically produces biased estimates of the swap rate. Institutional differences usually require some form of interpolation to be employed and may in principle explain this empirical result. Using Australian data, we find evidence consistent with this explanation and show that model performance is greatly improved if an alternative interpolation method is used. In doing so, we also provide the first published Australian evidence on the accuracy of the futures-based approach to pricing interest rate swaps.
Notes Article first published online 31st May 2005
Language eng
Field of Research 159999 Commerce, Management, Tourism and Services not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2005, AFAANZ
Persistent URL http://hdl.handle.net/10536/DRO/DU:30042546

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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