The Affine Arbitrage-Free Class of: Nelson-Siegel Term Structure Models

Jens Christensen, Francis Diebold and Glenn Rudebusch

No 13611, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.

JEL-codes: G1 G12 (search for similar items in EconPapers)
Date: 2007-11
Note: AP EFG IFM
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Citations: View citations in EconPapers (26)

Published as Christensen, Jens H.E. & Diebold, Francis X. & Rudebusch, Glenn D., 2011. "The affine arbitrage-free class of Nelson-Siegel term structure models," Journal of Econometrics, Elsevier, vol. 164(1), pages 4-20, September.

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Journal Article: The affine arbitrage-free class of Nelson-Siegel term structure models (2011)
Working Paper: The affine arbitrage-free class of Nelson-Siegel term structure models (2007)
Working Paper: The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models (2007)
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