Linearized Nelson-Siegel and Svensson Models for the Estimation of Spot Interest Rates

43 Pages Posted: 10 Jul 2008 Last revised: 24 Nov 2010

See all articles by Geneviève Gauthier

Geneviève Gauthier

HEC Montreal - Department of Decision Sciences; HEC Montreal - Department of Management Sciences

Jean-Guy Simonato

HEC Montréal

Date Written: Novembre 22, 2009

Abstract

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

Gauthier, Genevieve and Simonato, Jean-Guy, Linearized Nelson-Siegel and Svensson Models for the Estimation of Spot Interest Rates (Novembre 22, 2009). Available at SSRN: https://ssrn.com/abstract=1157617 or http://dx.doi.org/10.2139/ssrn.1157617

Genevieve Gauthier

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

HEC Montreal - Department of Management Sciences ( email )

Montreal, Quebec H3T 2A7
Canada

Jean-Guy Simonato (Contact Author)

HEC Montréal ( email )

3000, chemin de la Cote-Sainte-Catherine
Service de l'enseignement de la finance
Montreal, Quebec H3T 2A7
Canada
514-340-6807 (Phone)
514-340-5632 (Fax)

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