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An arbitrage-free generalized Nelson--Siegel term structure model

Jens Christensen (), Francis Diebold () and Glenn Rudebusch ()

Econometrics Journal, 2009, vol. 12, issue 3, pages C33-C64

Abstract: The Svensson generalization of the popular Nelson--Siegel term structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson--Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed, we show that the factor loadings of the Svensson generalization cannot be obtained in a standard finance arbitrage-free affine term structure representation. Therefore, we introduce a closely related generalized Nelson--Siegel model on which the no-arbitrage condition can be imposed. We estimate this new AFGNS model and demonstrate its tractability and good in-sample fit. Copyright The Author(s). Journal compilation Royal Economic Society 2009

Date: 2009
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Working Paper: An Arbitrage-Free Generalized Nelson-Siegel Term Structure Model (2008) Downloads
Working Paper: An Arbitrage-Free Generalized Nelson-Siegel Term Structure Model (2008) Downloads
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