We introduce a versatile and robust model that may help policymakers, bond portfolio managers and financial institutions to gain insight into the future shape of the yield curve. The Burg model forecasts a 20-day yield curve, which fits a pth-order autoregressive (AR) model to the input signal by minimizing (least squares) the forward and backward prediction errors while constraining the autoregressive parameters to satisfy the Levinson-Durbin recursion. Then, it uses an infinite impulse response prediction error filter. Results are striking when the Burg model is compared to the Diebold and Li model: the model not only significantly improves accuracy, but also its forecast yield curves stick to the shape of observed yield curves, whether normal, humped, flat or inverted.

Suppose D ⊂⊂ C n is a convex domain with real-analytic boundary. Assume K is a compact subset of ∂D which is a peak set for A ∞ (D), and L is a compact subset of K. Then L is a peak set for A ∞ (D).

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This paper explores a way to construct a new family of univariate probability distributions where the parameters of the distribution capture the dependence between the variable of interest and the continuous latent state variable (the regime). The distribution nests two well known families of distributions, namely, the skew normal family of Azzalini (1985) and a mixture of two Arnold et al. (1993) distribution. We provide a stochastic representation of the distribution which enables the user to easily simulate the data from the underlying distribution using generated uniform and normal variates. We also derive the moment generating function and the moments. The distribution comprises eight free parameters that make it very flexible. This flexibility allows the user to capture many stylized facts about the data such as the regime dependence, the asymmetry and fat tails as well as thin tails.

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