Modelling the Yield Curve with Orthonormalised Laguerre Polynomials: A Consistent Cross-Sectional and Inter-Temporal Approach

Leo Krippner

Working Papers in Economics from University of Waikato

Abstract: This article proposes the orthonormalised Laguerre polynomial (OLP) model of the yield curve, a generic linear model that is both cross-sectionally consistent (that is, it reliably fits the yield curve at a given point in time), and inter-temporally consistent (that is, the cross-sectional parameters are shown to be consistent over time within the expectations hypothesis framework). The OLP model generalises the exponential-polynomial model for a single yield curve, as originally proposed by Nelson and Siegel (1987), and also allows for the simultaneous modelling of other same-currency yield curves that have instrument-specific differences (such as default risk), as in Houweling, Hoek and Kleibergen (2001). New Zealand data is used to illustrate the empirical application of the OLP model.

Keywords: yield curve; term structure; expectations hypothesis; exponential polynomial; Nelson and Siegel model (search for similar items in EconPapers)
JEL-codes: C21 C22 E43 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2003-09-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://repec.its.waikato.ac.nz/wai/econwp/0302.pdf (application/pdf)

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: https://EconPapers.repec.org/RePEc:wai:econwp:03/02

Access Statistics for this paper

More papers in Working Papers in Economics from University of Waikato Private Bag 3105, Hamilton, New Zealand, 3240. Contact information at EDIRC.
Bibliographic data for series maintained by Geua Boe-Gibson ().