###

# Worksheet Name Title

1 Overview WORKSHEET OVERVIEW: McCullochCubicSplineYieldCurveModel(24 5 04).xls
2 Spline Basis Function McCulloch Spline Basis Function
3 Approximating Discount Function McCulloch Cubic Basis Splines
4 Fitting Bond Universe Fitting McCulloch (1975) Discount Function

This Excel workbook implements McCulloch (1971,75) cubic spline curve fitting model as
discussed in Anderson, N., Breedon, F., Deacon, M., Derry, A., & Murphy, G. (1996). "Estimating
and interpreting the yield curve." Chichester: John Wiley Series in Financial Economics and
Quantitative Analysis. pgs. 42-44.

Program author and copyright Kurt Hess, kurthess@waikato.ac.nz

McCulloch, J. H. (1971). Measuring the Term Structure of Interest Rates. Journal of Business, 44,
19-31.
McCulloch, J. H. (1975). The Tax-Adjusted Yield Curve. Journal of Finance, 30, 811-829.

khess WMS 11/02/2021 25891241.xls Overview Page 1

McCulloch Spline Basis Function programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz Back to Overview
Time to maturity m 6.0 60
McCulloch Spline Basis Function
Lower knot kj-1 - 0 1.0
0.9
Middle knot kj 1.5 15
0.8
Upper knot kj+1 4.0 40 0.7
0.6
Spline basis function fj(m) #VALUE! 0.5
0.4
0.3
0.2
0.1
-
- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Kurt Hess, Waikato Management School Page 2 25891241.xls Spline Basis Function 11/02/2021
McCulloch Cubic Basis Splines programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz Back to Overview

Time to maturity m 12.0 120

McCulloch (1975) Cubic Basis Splines
k1
Knot (j) fj(m) aj aj * fj(m)
k1 - #VALUE! (0.02841) #VALUE! 12 k2
k2 1.0 #VALUE! (0.02375) #VALUE!
10 k3
k3 2.0 #VALUE! (0.00296) #VALUE!
k4 k4
4.0 #VALUE! (0.00124) #VALUE! 8
k5 6.0 #VALUE! (0.00060) #VALUE! k5
k6 6
8.0 #VALUE! (0.00036) #VALUE!
k6
k7 10.0 #VALUE! (0.00030) #VALUE! 4
k8 15.0 #VALUE! (0.00028) #VALUE! k7
k9 20.0 #VALUE! (0.00017) #VALUE! 2
k8
Generate New SUM[aj * fj(m)]
- k9
#VALUE!
Random 0 2 4 6 8 10 12 14 16 18 20
d(m) = 1 + SUM[aj * fj(m)] #VALUE!
Coefficients aj
d(m) = 1 + SUM[aj * fj (m)]
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1

1
1

- 5.0 10.0 15.0 20.0 25.0

Kurt Hess, Waikato Management School Page 3 25891241.xls Approximating Discount Function 11/02/2021
Fitting McCulloch (1975) Discount Function programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz Back to Overview
Time to maturity m 6.0 60
McCulloch Discount Function 100% Zero Spot and Forward Rates
Discount factor d(m) #VALUE!
Spot rate at time m r(m) #VALUE! Dt 90%
1.0
Forward 0.001 yrs at m f(m,m+Dt) #VALUE! 0.001 yr 80%
0.9
KNOT INPUT manual automatic 0.8 70%
Insert select knot # Select no of 60%
0.7
knots here
knot times 4 0.6 50%
time time Coeff aj 0.5 40%
1st knot 0 #VALUE! #VALUE! 0.4
30%
0.3
2nd knot 1 #VALUE! #VALUE! 20%
0.2
3rd knot 2 #VALUE! #VALUE! 10%
0.1
4th knot 5 #VALUE! #VALUE! - 0%
5th knot 11 #VALUE! #VALUE! -1 1 3 5 7 9 11 13 15 0 5 10 15 20 25
6th knot #VALUE! #VALUE!
7th knot #VALUE! #VALUE!
8th knot #VALUE! #VALUE!
9th knot #VALUE! #VALUE! Bond Info
10th knot #VALUE! #VALUE! No.of bonds 81
11th knot #VALUE! #VALUE! Time to maturity (yrs) Coupons (%)
Min #VALUE! Min 1.625%
Bond Data Max #VALUE! Max 7.125%
Settlement date 1-Nov-03 Average #VALUE! Average 3.929%
Coupon frequency 2 2

Accrued Model Price

Issuer Coupon Maturity Bid Ask Mid Clean Interest Clean YTM Duration (cheap) / rich
Pfandbrief Swiss KB 4.625% 21-Mar-04 100.738 100.738 100.74% #VALUE! #VALUE! 2.6558% 0.389 #VALUE!
Pfandbrief Swiss KB 4.625% 30-Mar-04 100.927 101.052 100.99% #VALUE! #VALUE! 2.1670% 0.414 #VALUE!
Pfandbrief Swiss KB 7.000% 10-Apr-04 101.491 101.491 101.49% #VALUE! #VALUE! 3.4709% 0.442 #VALUE!
Pfandbrief Swiss KB 4.125% 15-May-04 101.201 101.234 101.22% #VALUE! #VALUE! 1.8168% 0.539 #VALUE!
Pfandbrief Swiss KB 5.125% 06-Jun-04 101.793 101.832 101.81% #VALUE! #VALUE! 2.0203% 0.597 #VALUE!
Pfandbrief Swiss KB 4.375% 25-Jun-04 101.718 101.762 101.74% #VALUE! #VALUE! 1.6490% 0.650 #VALUE!
Pfandbrief Swiss KB 4.250% 30-Sep-04 102.599 102.671 102.64% #VALUE! #VALUE! 1.3277% 0.914 #VALUE!
Pfandbrief Swiss KB 3.125% 15-Oct-04 101.978 101.978 101.98% #VALUE! #VALUE! 1.0329% 0.956 #VALUE!
Pfandbrief Swiss KB 5.750% 15-Nov-04 104.200 104.285 104.24% #VALUE! #VALUE! 1.5981% 0.987 #VALUE!
Pfandbrief Swiss KB 4.125% 25-Nov-04 103.076 103.076 103.08% #VALUE! #VALUE! 1.2037% 1.028 #VALUE!
Pfandbrief Swiss KB 5.750% 09-Dec-04 104.631 104.631 104.63% #VALUE! #VALUE! 1.4919% 1.053 #VALUE!
Pfandbrief Swiss KB 6.375% 15-Dec-04 105.271 105.271 105.27% #VALUE! #VALUE! 1.5938% 1.065 #VALUE!
Pfandbrief Swiss KB 3.500% 20-Dec-04 102.732 102.732 102.73% #VALUE! #VALUE! 1.0661% 1.103 #VALUE!

Kurt Hess, Waikato Management School Page 4 25891241.xls Fitting Bond Universe 11/02/2021
Pfandbrief Swiss KB 3.250% 14-Jan-05 102.658 102.658 102.66% #VALUE! #VALUE! 1.0135% 1.172 #VALUE!
Pfandbrief Swiss KB 5.500% 31-Jan-05 104.924 105.031 104.98% #VALUE! #VALUE! 1.4386% 1.200 #VALUE!
Pfandbrief Swiss KB 3.625% 15-Feb-05 103.251 103.251 103.25% #VALUE! #VALUE! 1.0687% 1.255 #VALUE!
Pfandbrief Swiss KB 4.000% 15-Feb-05 103.649 103.649 103.65% #VALUE! #VALUE! 1.1289% 1.251 #VALUE!
Pfandbrief Swiss KB 5.500% 15-Mar-05 105.610 105.610 105.61% #VALUE! #VALUE! 1.3406% 1.322 #VALUE!
Pfandbrief Swiss KB 3.875% 30-Mar-05 103.868 103.868 103.87% #VALUE! #VALUE! 1.0990% 1.378 #VALUE!
Pfandbrief Swiss KB 2.500% 06-Apr-05 102.199 102.321 102.26% #VALUE! #VALUE! 0.9009% 1.407 #VALUE!
Pfandbrief Swiss KB 5.000% 09-Jun-05 105.928 105.928 105.93% #VALUE! #VALUE! 1.2431% 1.560 #VALUE!
Pfandbrief Swiss KB 4.375% 15-Jun-05 105.122 105.122 105.12% #VALUE! #VALUE! 1.1657% 1.582 #VALUE!
Pfandbrief Swiss KB 2.125% 05-Sep-05 102.171 102.171 102.17% #VALUE! #VALUE! 0.9317% 1.824 #VALUE!
Pfandbrief Swiss KB 3.250% 15-Sep-05 103.954 104.079 104.02% #VALUE! #VALUE! 1.0705% 1.841 #VALUE!
Pfandbrief Swiss KB 3.250% 15-Sep-05 103.954 104.079 104.02% #VALUE! #VALUE! 1.0705% 1.841 #VALUE!
Pfandbrief Swiss KB 4.250% 15-Sep-05 105.664 105.664 105.66% #VALUE! #VALUE! 1.1723% 1.833 #VALUE!
Pfandbrief Swiss KB 3.500% 31-Oct-05 104.606 104.731 104.67% #VALUE! #VALUE! 1.1229% 1.967 #VALUE!
Pfandbrief Swiss KB 4.125% 31-Oct-05 105.783 105.783 105.78% #VALUE! #VALUE! 1.1783% 1.961 #VALUE!
Pfandbrief Swiss KB 4.500% 15-Dec-05 106.798 106.798 106.80% #VALUE! #VALUE! 1.2333% 2.001 #VALUE!

Kurt Hess, Waikato Management School Page 5 25891241.xls Fitting Bond Universe 11/02/2021