TITLE:
Lower and Upper Bounds Estimators for a Real Yield Curve Based on Another Real Yield Curve and Its Break-Even Inflation Rate
AUTHORS:
Rogério F. Porto, Daniel T. Araújo
KEYWORDS:
Term Structure of Real Rates, Inflation-Indexed Bonds, Expected Inflation, Inflation Risk Premium, Liquidity Risk Premium
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.16 No.1,
February
24,
2026
ABSTRACT: We present a method to estimate some lower and upper bounds of a real yield curve. Between these bounds lies a region where it is mathematically impossible to contain real yields that satisfy the stated assumptions. This method is based on another real yield curve and a simple economic model of its break-even inflation rate that is split in inflation expectation, convexity term, and liquidity and inflation risk premiums. This formula is specially useful when one of these curves is difficult to obtain but a respective inflation expectation series is available. We illustrate our method with yield curves from Brazil, since it issues sovereign bonds linked to two different inflation indices each.