Author: Francis X. Diebold
Publisher: Princeton University Press
ISBN: 0691146802
Category : Business & Economics
Languages : en
Pages : 223
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Book Description
Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed. Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Author: Chao He
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Francis X. Diebold
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 17
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Book Description
Despite powerful advances in yield curve modeling in the last twenty years, comparatively little attention has been paid to the key practical problem of forecasting the yield curve. In this paper we do so. We use neither the no-arbitrage approach, which focuses on accurately fitting the cross section of interest rates at any given time but neglects time-series dynamics, nor the equilibrium approach, which focuses on time-series dynamics (primarily those of the instantaneous rate) but pays comparatively little attention to fitting the entire cross section at any given time and has been shown to forecast poorly. Instead, we use variations on the Nelson-Siegel exponential components framework to model the entire yield curve, period-by-period, as a three dimensional parameter evolving dynamically. We show that the three time-varying parameters may be interpreted as factors corresponding to level, slope and curvature, and that they may be estimated with high efficiency. We propose and estimate autoregressive models for the factors, and we show that our models are consistent with a variety of stylized facts regarding the yield curve. We use our models to produce term-structure forecasts at both short and long horizons encouraging results. In particular, our forecasts appear much more accurate at long horizons than various standard benchmark forecasts.
Author: Azamat Abdymomunov
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
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Book Description
In this paper, we investigate whether credit spread curve information helps forecast the government bond yield curve and whether the joint dynamics of the government bond yields and credit spreads have structural changes. For this purpose, we use a joint dynamic Nelson-Siegel (DNS) model of the term structures of U.S. Treasury interest rates and credit spreads. We find that this joint model produces substantially more accurate out-of-sample Treasury yields forecasts compared with a standard DNS yield curve only model. We also find that the predictive gain from incorporating the credit spread curve information substantially increases if the joint model accounts for structural changes in the dynamics of yield and credit spread curves. In addition, our model incorporates a zero lower bound restriction ensuring that our predictions are economically plausible.
Author: Christian Scheitlin
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The goal of this thesis is to forecast the US Treasury yield curve. In order to do so, the yield curve will first be modeled by the Nelson-Siegel (1987) method with the Diebold and Li (2006) extension and then forecasted. The data used is provided by Gürkaynak, Sack, and Wright (2006). The large dataset consists of fitted yields of US Treasury bonds. The conclusion of this thesis is that there is evidence that the Diebold and Li (2006) method can be applied to the dataset used. The forecasting results show mostly the correct change in direction of the yield curve but lack accuracy. The forecasting ability is quite well considering that the model does not include any macro-economic factors which are proven to influence the yield curve largely according to the results by Diebold, Piazzesi, and Rudebusch (2005).
Author: Paul Sundell
Publisher:
ISBN:
Category : Government securities
Languages : en
Pages : 20
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Book Description
Author: John B. Schwartzman
Publisher: McGraw-Hill Companies
ISBN: 9780070559677
Category : Business & Economics
Languages : en
Pages : 244
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Book Description
Set up your own simple, one-page charts that track and assess interest rates and the factors affecting them--on a weekly, monthly, or quarterly basis. Determine, with a high degree of accuracy, in which direction the various trends influencing interest rates are likely to push them. Supplemented by a host of charts, graphs, examples, and illustrations, Forecasting Interest Rates allows you to spot the all-important events that cause interest rates to move--whether they're front-page news or subtle incidents. It shows you how to recognize a reliable interest rate factor from a red herring--whether the source is the Department of Commerce, the Department of Labor Statistics, the Federal Reserve Board, a university research center, or a nonprofit company specializing in business economic research.
Author: Ronald J. Ryan
Publisher: Global Professional Publishi
ISBN: 9781888998061
Category : Business & Economics
Languages : en
Pages : 240
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Book Description
� Invaluable to financial professionals � Breakthrough that examines both theory and practical solutions Examines both the advanced theory and practice of these techniques. Topics include: single- and multi-factor models; applying yield-curve modeling to risk management; forecasting short-term interest rates; unique yield-curve volatility; and trading strategies.
Author: Zuliu Hu
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
The financial press frequently suggest that the shape of yield curve reflects information about the prospects of the economy. This paper attempts to formalize the link between the yield curve and the real economic activity. A closed-form formula for the term structure of interest rates is derived. It is shown that the term structure embodies the market’s expectation about changes in the macroeconomic fundamental--the growth in real aggregate output of the economy. The paper then documents the use of bond market data for predicting GDP growth in the G-7 industrial countries. The results suggest that a simple measure of the slope of the yield curve, namely the yield spread, serves as a good predictor of future economic growth. The out-of-sample forecasting performance of the yield spread compares favorably with that of the alternative stock price-based model and a univariate time series (ARMA) model. One practical implication is that it may be useful to add some measure of the term structure to the list of
Author: Hussain Abusaaq
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
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Book Description
ABSTRACT: In practice, economist do not observe the discount function, spot or forward curves so we must extract them from a few observed points along the yield curve. To do this I introduce a new method called the Global Piecewise Quartic Polynomial Interpolation to construct maximally smooth forward curves with zero pricing errors for government coupon bonds. This method can construct any spot and forward curve shape with zero pricing errors, including upward sloping, downward sloping, inverted or humped. Next, I use three methods to decompose the constructed forward and the implied spot curves into factors and loadings: (i) the DL three-factor model, (ii) principal components and (iii) Chebyshev polynomial approximations. My analysis shows that the first three loadings for the spot curve and the first, the second and the fourth loadings in the forward curve can be interpreted as level, slope and curvature, respectively. Moreover, the methods show that five, or two additional, factors are needed to model the forward curve with the same precision as can be achieved with three factors for the spot curve. Simple and multiple correlations are used to analyze the relationships between the business cycle and the five factors that are needed to model the forward curve, the three factors needed to model the spot curve and the three factors of the [4] model. The results suggest that the additional factors required to model the forward curve are indeed related to the business cycle. The third factor on the principal components on the forward is a leading indicator for the trough and the fifth factor on the principal components on the forward is a leading indicator for the peak. Finally, ARIMA models are used to estimate and forecast the spot and forward curve factors. I find that forward curve factors produce more accurate forecasts than the three [4] factors.
