In the absence of a liquid bond market, is it possible to construct the term structure by considering the curve observed on a liquid one and by rectifying the zero-coupon rates? These nominal rates will be in that case corrected by taking into consideration the difference of inflation rates. This method is based on Fisher's international relationship. It obviously assumes that this differential remains constant durant all the period for which the curve is constructed. Is there any other method of calculus?
That is a difficult task. Are the bonds risk free? If they are not you have to find a way to disantangle the credit spread curve from the illiquidity component.
Anyway, you will have to rely on a serie of assumptions. For instance, you may compute the illiquidity component from the difference on synthetic par bond yield and the libor at shorter maturities, and assume that the illiquity component is constant over time.
Thank you Paulo. The bonds are effectively risk free and there's no problem of credit spread to extract.
However there's a problem of level of nominal interest rates which are highest than those on dollar or on euro.
Take a look on this article:
http://businessperspectives.org/journals_free/imfi/2009/imfi_en_2009_01_Chou.pdf
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