Empirical Analysis and Forecasting of Multiple Yield Curves

Posted: 10 Jan 2019 Last revised: 1 Sep 2020

See all articles by Christoph Gerhart

Christoph Gerhart

University of Freiburg - Institut für Mathematische Stochastik

Eva Lütkebohmert

University of Freiburg, Institute for Economic Research

Date Written: January 8, 2019

Abstract

In this paper we develop new dynamic factor models to forecast multiple yield curves. Our methodology is based on a thorough empirical study of daily tenor-dependent term structures over the time period 2005-2017 which reveals important cross-tenor dependencies of yields. The suggested forecasting approach accounts for these dependencies and thus targets the new features of post-crisis interest rate markets. Our method generates extremely precise predictions of future yield curves for various forecasting horizons. In particular, it clearly outperforms existing single-curve forecasting methods which naturally omit any connections between rates of different tenor structures.

Keywords: multiple term structures, principal component analysis, dynamic factor model, Nelson-Siegel curve, forecasting of yield curves

JEL Classification: G1, E4, C5, C3

Suggested Citation

Gerhart, Christoph and Lütkebohmert, Eva, Empirical Analysis and Forecasting of Multiple Yield Curves (January 8, 2019). Available at SSRN: https://ssrn.com/abstract=3311998 or http://dx.doi.org/10.2139/ssrn.3311998

Christoph Gerhart

University of Freiburg - Institut für Mathematische Stochastik ( email )

D-79104, Freiburg
Germany

Eva Lütkebohmert (Contact Author)

University of Freiburg, Institute for Economic Research ( email )

Platz der Alten Synagoge 1
Freiburg, D-79098
Germany

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