An Intertemporally-Consistent and Arbitrage-Free Version of the Nelson and Siegel Class of Yield Curve Models
Leo Krippner
Working Papers in Economics from University of Waikato
Abstract:
This article derives a generic, intertemporally-consistent, and arbitrage-free version of the popular class of yield curve models originally introduced by Nelson and Siegel (1987). The derived model has a theoretical foundation (conferred via the Heath, Jarrow and Morton (1992) framework) that allows it to be used in applications that involve an implicit or explicit time-series context. As an example of the potentialapplication of the model, the intertemporal consistency is exploited to derive a theoretical time-series process that may be used to forecast the yield curve. The empirical application of the forecasting framework to United States data results in out-of-sample forecasts that outperform the random walk over a sample period of almost 50 years, for forecast horizons ranging from six months to three years.
Keywords: yield curve; term structure of interest rates; Nelson and Siegel model; Heath-Jarrow-Morton framework (search for similar items in EconPapers)
JEL-codes: C22 E43 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-01-31
New Economics Papers: this item is included in nep-fin and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://repec.its.waikato.ac.nz/wai/econwp/0501.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:05/01
Access Statistics for this paper
More papers in Working Papers in Economics from University of Waikato Private Bag 3105, Hamilton, New Zealand, 3240. Contact information at EDIRC.
Bibliographic data for series maintained by Geua Boe-Gibson ().