Analyzing the Term Structure of Interest Rates using the Dynamic Nelson-Siegel Model with Time-Varying Parameters
In this discussion paper we introduce time-varying parameters in the dynamic Nelson–Siegel yield curve model for the simultaneous analysis and forecasting of interest rates of different maturities. The Nelson–Siegel model has been recently reformulated as a dynamic factor model with vector autoregressive factors. We extend this framework in two directions. First, the factor loadings in the Nelson–Siegel yield model depend on a single loading parameter that we treat as the fourth latent factor. Second, we specify the overall volatility as a generalized autoregressive conditional heteroscedasticity (GARCH) process. We present empirical evidence of considerable increases in within-sample goodness of fit for these advances in the dynamic Nelson–Siegel model.
Year of publication: |
2007
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Authors: | Koopman, Siem Jan ; Mallee, Max I.P. ; van der Wel, Michel |
Publisher: |
Amsterdam and Rotterdam : Tinbergen Institute |
Subject: | Zinsstruktur | Dynamisches Modell | Zustandsraummodell | Theorie | Yield Curve | Time-varying Volatility | Spline Functions | Kalman Filter | Missing Values |
Saved in:
Series: | Tinbergen Institute Discussion Paper ; 07-095/4 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 83793169X [GVK] hdl:10419/86192 [Handle] RePEc:dgr:uvatin:20070095 [RePEc] |
Classification: | C32 - Time-Series Models ; C51 - Model Construction and Estimation ; E43 - Determination of Interest Rates; Term Structure Interest Rates |
Source: |
Persistent link: https://www.econbiz.de/10010325155