Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills

44 Pages Posted: 22 Jun 2004 Last revised: 9 Aug 2005

See all articles by Charles R. Nelson

Charles R. Nelson

Dept of Economics

Andrew F. Siegel

University of Washington - Department of Finance and Business Economics; National Bureau of Economic Research (NBER)

Date Written: March 1985

Abstract

A new model is proposed for representinq the term to maturity structure of interest rates at a point in time.The model produces humped, monotonic and S-shaped yield curves using four parameters. Conditional on a time decay parameter, estimates of the other three are obtained by least squares. Yield curves for thirty-seven sets of U.S. Treasury bill yields with maturities up to one year are presented. The median standard deviation of fit is just over seven basis points and the corresponding median R-squared is .96. Study of residuals suggests the existence of specific maturity effects not previously identified. Using the models to predict the price of a long term bond provides a diagnostic check and suggests directions for further research.

Suggested Citation

Nelson, Charles R. and Siegel, Andrew F., Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills (March 1985). NBER Working Paper No. w1594, Available at SSRN: https://ssrn.com/abstract=253124

Charles R. Nelson (Contact Author)

Dept of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Andrew F. Siegel

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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