Linearized Nelson-Siegel and Svensson Models for the Estimation of Spot Interest Rates
43 Pages Posted: 10 Jul 2008 Last revised: 24 Nov 2010
Date Written: Novembre 22, 2009
Linearized versions of the Nelson-Siegel and Svensson models for estimating spot yield curves from samples of coupon bonds are developed and analyzed. It is shown how these models can be made linear in the level, slope and curvature parameters and how prior information about these parameters can be incorporated in the estimation procedure. The performance of the linearized models are assessed in a Monte Carlo setting and with a sample of U.S. government bonds. The results reveal that the linearized models compare favorably to the original models in terms of precision, computing effort and prevalence of local optima.
Keywords: Nelson-Siegel, Svensson, Term structure of interest rates, Local optima, Prior information
JEL Classification: E4, C5, C31
Suggested Citation: Suggested Citation