Economics at your fingertips  

Gaussian estimation and forecasting of the U.K. yield curve with multi-factor continuous-time models

Diana Tunaru

International Review of Financial Analysis, 2017, vol. 52, issue C, 119-129

Abstract: In this paper we will estimate the term structure of daily U.K. interest rates using a range of more flexible continuous-time models. A multivariate framework is employed for the dynamic estimation and forecasting of four classic models over the eventful period of 2000–2013. The extensions are applied in two stages to four- and five-factor formulations, allowing us to assess the potential benefit of gradually increasing the model-flexibility. The Gaussian estimation methods for dynamic continuous-time models yield insightful comparative results concerning the two different segments of the yield curve, short- and long-term, respectively. In terms of in-sample performance the newly extended multi-factor general model is superior to all other restricted models. When compared to benchmark discrete-time models, the out-of-sample performance of the extended continuous-time models seems to be consistently superior with regards to the short-term segment of the yield curve.

Keywords: Continuous-time models; Forecasting; Gaussian estimation; Multi-factor diffusion models with feedbacks; Term structure of interest rates (search for similar items in EconPapers)
JEL-codes: G12 G17 C51 C58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Series data maintained by Dana Niculescu ().

Page updated 2018-03-15
Handle: RePEc:eee:finana:v:52:y:2017:i:c:p:119-129