This paper discusses possible approaches to the construction of gilt yield indices published by the Financial Times. The existing method, described by Dobbie & Wilkie (1978), splits bonds into high, medium and low-coupon bands and fits separate yield curves to each. This method has been identified as susceptible to 'catastrophic' jumps when the least-squares fit jumps from one set of parameters to another set of quite different values. This problem is a result of non-linearities in the least-squares formula w…
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