Adaptive dynamic Nelson–Siegel term structure model with applications

Chen, Ying; Niu, Linlin

doi:10.1016/j.jeconom.2014.02.009

Cited by 36 publications

(46 citation statements)

References 40 publications

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“…(). In addition to the aforementioned paper of Chen and Niu (), the only other paper concerned with change point estimation is Chib and Kang (). The main difference between hidden Markov models and change point models is that in the former only a few (typically two) states are assumed and the system moves between them.…”

Section: Introductionmentioning

confidence: 99%

“…A currently established approach is to use hidden Markov chains to estimate the structural changes together with the parameters of the affine structure; see Nieh et al (2010). In addition to the aforementioned paper of Chen and Niu (2014), the only other paper concerned with change point estimation is Chib and Kang (2013). The main difference between hidden Markov models and change point models is that in the former only a few (typically two) states are assumed and the system moves between them.…”

Section: Introductionmentioning

confidence: 99%

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Change point tests in functional factor models with application to yield curves

Bardsley

Horváth

Kokoszka

et al. 2017

The Econometrics Journal

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Summary Motivated by the problem of the detection of a change point in the mean structure of yield curves, we introduce several methods to test the null hypothesis that the mean structure of a time series of curves does not change. The mean structure does not refer merely to the level of the curves, but also to their range and other aspects of their shape, most prominently concavity. The performance of the tests depends on whether possible break points in the error structure, which refers to the random variability in the aspects of the curves listed above, are taken into account or not. If they are not taken into account, then an existing change point in the mean structure may fail to be detected with a large probability. The paper contains a complete asymptotic theory, a simulation study and illustrative data examples, as well as details of the numerical implementation of the testing procedures.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Change point tests in functional factor models with application to yield curves

Bardsley

Horváth

Kokoszka

et al. 2017

The Econometrics Journal

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“…The latter instead is established upon exponential decay functions and based on nonlinear minimization methods. Moreover, the latter has been successfully extended to dynamic Nelson-Siegel by Diebold and Li (2006), to adaptive dynamic Nelson-Siegel by Chen and Niu (2014), and further to the affine arbitragefree class of Nelson-Siegel by Christensen et al (2011). These researchers, and still others (Coroneo, Nyholm & Vidova-Koleva, 2011), validate that the Nelson-Siegel class has economically intuitive properties as yield curve factors coincide with the modern three factors: level, slope, and curvature.…”

Section: Introductionmentioning

confidence: 82%

Estimating yield curves of the U.S. Treasury securities: An interpolation approach

Guo

2018

Rev Financ Econ

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Following the approach of interpolation, this paper proposes the multiple exponential decay model to fit yield curves for both the U.S. TIPS market and the conventional Treasury security market. Several estimation methods, including the unconstrained/constrained nonlinear minimization, quadratic programming, and the iterative linear least squares, are applied to estimate the unknown parameters according to different curve‐fitting purposes. Comparisons between the proposed model and the alternatives show that the multiple exponential decay successfully (1) adapts to a variety of shapes associated with yield curves, (2) (partially) keeps in line with the economic interpretations of Nelson–Siegel summarized by Diebold and Li (), and (3) dominates the competing models in curve‐fitting performance measured by mean fitted‐price errors over the sample period. In addition, the exact specification of a nonparametric interpolation model is pinned down by applying three statistical tools, which enable us to jointly take into account validity, optimality, and parsimoniousness of the proposed model.

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“…As a result, this has been the center of significant research effort. Several statistical methods and tools, commonly used in econometrics and finance, are implemented to model the yield curve (see for example, [15], [10], [21] and [6]). The [15] introduces a parametrically parsimonious model for yield curves that has the ability to represent the shapes generally associated with yield curves; monotonic, humbed and mathcalS-shaped.…”

Section: Introductionmentioning

confidence: 99%

“…The small value of λ leads to slow decay and can better fit the curve at longer maturities. Several literature [15,10,21,6] reports that the model explains more than 90% variations in yield curve. The movement of the parameters through time reflects the change in the monetory policy of Federal Reserve and hence the economic activity.…”

Section: Introductionmentioning

confidence: 99%

Modeling Nelson–Siegel Yield Curve Using Bayesian Approach

Das

2019

New Economic Windows

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Yield curve modeling is an essential problem in finance. In this work, we explore the use of Bayesian statistical methods in conjunction with Nelson-Siegel model. We present the hierarchical Bayesian model for the parameters of the Nelson-Siegel yield function. We implement the MAP estimates via BFGS algorithm in rstan. The Bayesian analysis relies on the Monte Carlo simulation method. We perform the Hamiltonian Monte Carlo (HMC), using the rstan package. As a by-product of the HMC, we can simulate the Monte Carlo price of a Bond, and it helps us to identify if the bond is over-valued or under-valued. We demonstrate the process with an experiment and US Treasury's yield curve data. One of the interesting observation of the experiment is that there is a strong negative correlation between the price and long-term effect of yield. However, the relationship between the short-term interest rate effect and the value of the bond is weakly positive. This is because posterior analysis shows that the short-term effect and the long-term effect are negatively correlated.

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Adaptive dynamic Nelson–Siegel term structure model with applications

Cited by 36 publications

References 40 publications

Change point tests in functional factor models with application to yield curves

Change point tests in functional factor models with application to yield curves

Estimating yield curves of the U.S. Treasury securities: An interpolation approach

Modeling Nelson–Siegel Yield Curve Using Bayesian Approach

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