New study reveals how to accurately price bonds in the market!
The article discusses how interest-rate models can be used to price bonds, but may not match the actual market yield curve. To bridge this gap, different techniques are used to fit the theoretical yield curve to the observed market curve. Common methods include cubic polynomial, cubic spline, and nonparametric curve-fitting like Nelson and Siegel. The chapter provides a practical example of fitting the yield curve using the cubic spline model.