Dynamic Modeling Approach to Forecast the Term Structure of Government Bond Yields
Author | : Min Fu |
Publisher | : |
Total Pages | : 58 |
Release | : 2013 |
Genre | : |
ISBN | : |
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Since arbitrage-free is a desirable theoretical feature in a healthy financial market, many efforts have been made to construct arbitrage-free models for yield curves. However, little attention is paid to review if such restriction will improve yield forecast. We evaluate the importance of arbitrage-free restriction on dynamic Nelson-Siegel term structure when forecasting yield curves. We find that it doesn't help. We also compare these two Nelson-Siegel dynamic models with a benchmark dynamic model and show that Nelson-Siegel structure improve forecasts for long-maturity yields.