Report

A theoretical foundation for the Nelson and Siegel class of yield curve models

5 Mar 2012
Description

Yield curve models within the popular Nelson and Siegel (hereafter NS) class are shown to arise from a formal low-order Taylor approximation to the generic Gaussian affine term structure model.

That theoretical foundation provides an assurance that NS models correspond to a well-accepted framework for yield curve modeling.It further suggests that any yield curve from the GATSM class should be parsimoniously representable by an two-factor arbitrage-free NS model, which should prove useful for macro…nance applications. Such a model is derived and applied to provide evidence for changes in United States yield curve dynamics pre- and post-1988.

Publication Details
Language: 
English
Published year only: 
2012
26
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