Consistent Long-Term Yield Curve Prediction

Josef Teichmann and Mario V. W\"uthrich

Papers from arXiv.org

Abstract: We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data, as it is the case for interest rates. Furthermore, the model structure allows to separate clearly the tasks of estimating the volatility structure and of calibrating market prices of risk. The empirical part includes tests on modeling assumptions, back testing and a comparison with the Vasi\v{c}ek short rate model.

Date: 2012-03
New Economics Papers: this item is included in nep-ecm and nep-for
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