Estimating the Term Structure: Exact Methods

This lecture covers exact methods for estimating the term structure in interest rate models. It starts with the general formulation of discount curves and market prices, then delves into bond markets and cash flow dates. Sparse cash flow matrices are discussed, leading to formalizations in money, FRA, and swap markets. The lecture presents solutions to under-determined linear systems using bootstrap and pseudoinverse methods, emphasizing the importance of choosing the right discount curve. Examples from the US market illustrate the application of these methods, resulting in smooth discount curves and implied forward rates.