Modeling and Forecasting the Yield Curve by an Extended Nelson-Siegel Class of Models: A Quantile Autoregression Approach

25 Pages Posted: 29 Oct 2008 Last revised: 23 Feb 2011

Date Written: January 28, 2011

Abstract

This paper compares the in sample fitting and the out of sample forecasting performances of four distinct Nelson-Siegel class models: Nelson-Siegel, Bliss, Svensson, and a five factor model we propose in order to enhance the fitting flexibility. The introduction of the fifth factor resulted in superior adjustment to the data. For the forecasting exercise the paper contrasts the performances of the term structure models in association to the following econometric methods: quantile autoregression evaluated at the median, VAR, AR, and a random walk. As a pattern, the quantile procedure delivered the best results for longer forecasting horizons.

Keywords: Term structure, in-sample fitting, out-of-sample forecasts, Nelson-Siegel, Quantile Autoregression

JEL Classification: C53, E43, E47

Suggested Citation

de Rezende, Rafael Barros, Modeling and Forecasting the Yield Curve by an Extended Nelson-Siegel Class of Models: A Quantile Autoregression Approach (January 28, 2011). Available at SSRN: https://ssrn.com/abstract=1290741 or http://dx.doi.org/10.2139/ssrn.1290741

Rafael Barros De Rezende (Contact Author)

Stockholm School of Economics ( email )

Sveavägen 65, Stockholm (6th floor)
Box 6501 SE-113 83
Stockholm, SE-113 83
Sweden

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