We test whether the Nelson and Siegel (1987) yield curve model is arbitrage-free in a statistical sense. Theoretically, the Nelson-Siegel model does not ensure the absence of arbitrage opportunities, as shown by Bjork and Christensen (1999). Still, central banks and public wealth managers rely...

We test whether the Nelson and Siegel (1987) yield curve model is arbitrage-free. Theoretically, the Nelson-Siegel model does not ensure the absence of arbitrage opportunities, as shown by Bjork and Christensen (1999) and Filipovic (1999). Still, central banks and wealth managers rely heavily on...

Within a bivariate VAR model allowing for two-state Markov regime switching we test and evaluate the Expectations Theory (ET) of the term structure using Danish 1- and 3-months interest rates covering the period 1976-1997. A regime-shift approach is used in order to account for the change in...

Two methods for evolving forward the yield curve are evaluated and contrasted within a Monte Carlo experiment: one is originally presented by Rebonato et al. (2005) and the other by Bernadell et al. (2005). A detailed account for how to implement the models is also presented. Results suggest...

This paper presents the first empirical study of the bid/ask spread based on intra-daily transactions data from the Danish stock market. The technique developed by Roll (1984) for inferring the bid/ask spread is implemented and evaluated on samples of data from January, February and March 1993....

Using a new empirical model, I estimate the probability of trades being generated by privately informed traders. Inference is drawn on a trade-by-trade basis using data samples from the New York Stock Exchange (NYSE). The modeling setup facilitates in-depth analysis of the estimated probability...

This paper presents a new approach to recession prediction. The methodology relies on the shape of the yield curve alone and does not incorporate macroeconomic information or other explanatory variables. This makes the modelling framework less data intensive and more intuitive than other models...