The affine arbitrage-free class of Nelson-Siegel term structure models

Jens H.E. Christensen, Francis Diebold () and Glenn Rudebusch ()

No 2007-20, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.

Keywords: Interest rates; Econometric models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2007
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Related works:
Working Paper: The Affine Arbitrage-Free Class of: Nelson-Siegel Term Structure Models (2007)
Working Paper: The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models (2007)
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