Optimal Mix of the Extended Nelson Siegel Model for Turkish Sovereign Yield Curve

Oguzhan Cepni and Doruk Küçüksaraç

Economics Bulletin, 2017, vol. 37, issue 2, 1133-1142

Abstract: The yield curve is one of the most fundamental tools used by central banks. One of the most popular methods to estimate yield curve by the central banks is Extended Nelson Siegel model. However, there are some technical differences in yield curve estimation. These differences are mainly related to the choice of objective function and the maturity spectrum of bonds in the data set. In this respect, this note aims to find out the optimal combination of the Turkish Treasury bond market yield curve based on the Extended Nelson Siegel model. Main findings indicate that the exclusion of long-term bonds results in a better in-sample fit for the short-term bonds. On the other hand, the inclusion of repo transactions leads to a worsening in in-sample fit across all maturity segments regardless of the choice of the objective function. Regarding the choice of objective function, weighted price minimization provides better in sample-fit of the yield curve for all different maturity segments when the repo transactions are excluded.

Keywords: Yield curve; Extended Nelson Siegel; Optimization. (search for similar items in EconPapers)
JEL-codes: E4 G1 (search for similar items in EconPapers)
Date: 2017-05-25
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Citations: View citations in EconPapers (2)

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Working Paper: Optimal Mix of the Extended Nelson Siegel Model for Turkish Sovereign Yield Curve (2017)
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