A theoretical foundation for the Nelson and Siegel class of yield curve models

Leo Krippner
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Leo Krippner: Reserve Bank of New Zealand

No DP2009/10, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: This article establishes that most models within the popular and widely used Nelson and Siegel (1987, hereafter NS) class, with one notable exception being the Svensson (1995) variant, are effectively reduced-form representations of the generic Gaussian affine term structure model outlined in Dai and Singleton (2002). That fundamental theoretical foundation provides a compelling case for applying certain NS models as standard tools for yield curve analysis in economics and finance: users get the well-established pragmatic benefits of NS models along with an assurance that they correspond to a well-accepted set of principles and assumptions for modelling the yield curve and its dynamics.

JEL-codes: E43 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2009-09
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