Yield Curve Smoothing Models of the Term Structure

This paper surveys methodologies on the statistical approach to term structure estimation, also known as yield curve smoothing models. Specifically, term structure estimation methods are reviewed to determine the effects of the assumed functional form of the interpolating function and whether the methods' primary assumptions and estimation technique focus on the spot rate function, forward rate function, or discount function. To this end, we discuss the estimation of spot rates from on-the-run Treasuries, the estimation of spot rates, forward rates, and discount factors from all Treasuries, and the estimation of discount factors from Treasury STRIPS. The central papers under each section are described and their results are summarized. Different methodologies on the use of Treasury data are also discussed. Suggestions for future research are provided