Review on the Applications of Kalman Filter Class Approaches to Term Structure Estimation of Interest Rates

Key Points

• This review aims to synthesize the applications of Kalman filter approaches to interest rate term structure estimation from 1990 to 2025.
• Reviewed various Kalman filter family approaches for term-structure estimation.
• Analyzed Asia-Pacific swap-rate data to compare SRUKF and EKF performance.
• Explored performance under high-volatility local short-rate regimes.
• SRUKF reduces root mean square error (RMSE) by 90% compared to EKF on Asia-Pacific swap-rate data.
• UKF/SRUKF outperform EKF in high-volatility local short-rate environments.
• Identified common correlated measurement noise in thin Pacific-Basin markets.