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Arbitrage-free relative Nelson–Siegel model

Hokuto Ishii

Finance Research Letters, 2020, vol. 37, issue C

Abstract: This paper introduces a model of the difference between home and foreign country interest rates based on the arbitrage-free pricing theory, called the “Arbitrage-free relative Nelson–Siegel model” (AFRNS). This model implies that the relative volatility effect of the model appreciates future exchange rate changes. The effect increases as the future period lengthens.

Keywords: Arbitrage-free pricing theory; Relative yield curve; Uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: E43 G12 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612319304507

DOI: 10.1016/j.frl.2019.101377

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