Abstract: Assumption that diffusion function of zero-coupon bond’s price is quadratic function of time is the key for modeling stochastic term structure with risk-neutral approach, and stochastic term structure model is the basis for bond pricing models. Not only theoretic models but also empirical studies with historical data from the bond market of China, as well as a specific annual spot rate stochastic term structure model and a pricing model for Bond 961 are introduced in this paper.

Key words: spot interest rate, stochastic term structure, pricing model