Empirical analysis and forecasting of multiple yield curves

Christoph Gerhart and Eva Lütkebohmert

Insurance: Mathematics and Economics, 2020, vol. 95, issue C, 59-78

Abstract: In this paper we perform a thorough empirical study of tenor-dependent term structures which reveals important cross-tenor dependencies of yields as a persistent feature of post-crisis interest rate markets. Based on this analysis, we develop tractable dynamic factor models to forecast multiple yield curves. We show that our method outperforms existing single-curve forecasting methods by taking into account the connections between rates of different tenor structures. Our results have important implications e.g. for risk management in finance and insurance as the disregard of tenor dependencies may lead to an underestimation of risks.

Keywords: Multiple term structures; Principal component analysis; Dynamic factor model; Forecasting of yield curves; Solvency II (search for similar items in EconPapers)
JEL-codes: C3 C5 E4 G1 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:95:y:2020:i:c:p:59-78

DOI: 10.1016/j.insmatheco.2020.08.004

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