Yield Curve Estimation by Kernel Smoothing Methods

46 Pages Posted: 21 Jul 2008

See all articles by Oliver B. Linton

Oliver B. Linton

University of Cambridge

Enno Mammen

University of Mannheim - Department of Economics

Jens Perch Nielsen

City University London - Cass Business School

Carsten Tanggaard

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: April 2000

Abstract

We introduce a new method for the estimation of discount functions, yield curves and forward curves from government issued coupon bonds. Our approach is nonparametric and does not assume a particular functional form for the discount function although we do show how to impose various restrictions in the estimation. Our method is based on kernel smoothing and is defined as the minimum of some localized population moment condition. The solution to the sample problem is not explicit and our estimation procedure is iterative, rather like the backfitting method of estimating additive nonparametric models. We establish the asymptotic normality of our methods using the asymptotic representation of our estimator as an infinite series with declining coefficients. The rate of convergence is standard for one dimensional nonparametric regression. We investigate the finite sample performance of our method, in comparison with other well-established methods, in a small simulation experiment.

JEL Classification: C13, C14

Suggested Citation

Linton, Oliver B. and Mammen, Enno and Nielsen, Jens Perch and Tanggaard, Carsten, Yield Curve Estimation by Kernel Smoothing Methods (April 2000). LSE STICERD Research Paper No. EM385. Available at SSRN: https://ssrn.com/abstract=1162578

Oliver B. Linton (Contact Author)

University of Cambridge ( email )

Faculty of Economics
Cambridge, CB3 9DD
United Kingdom

Enno Mammen

University of Mannheim - Department of Economics ( email )

Mannheim, 68131
Germany

Jens Perch Nielsen

City University London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Carsten Tanggaard

affiliation not provided to SSRN

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