A Major Advantage of the Cubic Spline Approach Is That

question 5

Multiple Choice

A major advantage of the cubic spline approach is that it can be estimated using ordinary least squares (OLS) regression. Which of the following is NOT related to this estimation feature?

• A) OLS may be used because the price of bonds is the just the product of cashflows and discount functions summed up over all cash flows.
• B) OLS enables the use of all the bonds in the data set, even though there are more bonds than parameters to be estimated.
• C) OLS works for polynomials of any order in the splining function.
• D) OLS may be used because it satisfies the smoothness condition required for the forward curve in the estimation.

---

Definitions:

Government Spending

The total amount of public funds that a government expends on its services, employees, and programs within a given fiscal period.

Defense Budget

The defense budget is the portion of a national budget that is allocated to military spendings, including salaries, training, operations, and equipment.

Oil Crisis

A period marked by major interruptions in oil supply and subsequent increases in oil prices, often due to geopolitical tensions or conflicts.