Quantifying Illiquidity in Emerging Sovereign Market Trades
With increasing liquidity of in emerging sovereign debt market, it has become possible to estimate the term structure. However, several frictions that cause individual securities to be priced differently from the average pricing in the market characterize the market. In such a scenario, traditional estimation procedures like ordinary least squares using various functional forms do not perform well. We consider the Indian sovereign debt market as an example for our study. We find that mean absolute deviation is a better estimation procedure in illiquid markets than the ordinary least square. We further find out a novel liquidity weighted objective function for parameter estimation. We model the liquidity function using the exponential and hyperbolic tangent functions and suggest the most robust model for estimating term structures.
Finance Fixed Income Securities Non-linear Constrained Optimisation
国际会议
西安
英文
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）