ISBN-10:
0691146802
ISBN-13:
9780691146805
Pub. Date:
01/15/2013
Publisher:
Princeton University Press
Yield Curve Modeling and Forecasting: The Dynamic Nelson-Siegel Approach

Yield Curve Modeling and Forecasting: The Dynamic Nelson-Siegel Approach

by Francis X. Diebold, Glenn D. Rudebusch
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Product Details

ISBN-13: 9780691146805
Publisher: Princeton University Press
Publication date: 01/15/2013
Series: The Econometric and Tinbergen Institutes Lectures
Pages: 224
Product dimensions: 5.70(w) x 8.50(h) x 0.90(d)

About the Author


Francis X. Diebold is the Paul F. and Warren S. Miller Professor of Economics at the University of Pennsylvania and professor of finance and statistics at the university's Wharton School. Glenn D. Rudebusch is executive vice president and director of economic research at the Federal Reserve Bank of San Francisco. They are the coauthors of Business Cycles: Durations, Dynamics, and Forecasting (Princeton).

Table of Contents





List of Illustrations ix

Introduction xi

Preface xiii

Additional Acknowledgment xvii




1 Facts, Factors, and Questions 1

  • 1.1 Three Interest Rate Curves 2
  • 1.2 Zero-Coupon Yields 3
  • 1.3 Yield Curve Facts 4
  • 1.4 Yield Curve Factors 7
  • 1.5 Yield Curve Questions 13
  • 1.6 Onward 22






2 Dynamic Nelson-Siegel 23
  • 2.1 Curve Fitting 23
  • 2.2 Introducing Dynamics 26
  • 2.3 State-Space Representation 30
  • 2.4 Estimation 34
  • 2.5 Multicountry Modeling 42
  • 2.6 Risk Management 46
  • 2.7 DNS Fit and Forecasting 49






3 Arbitrage-Free Nelson-Siegel 55
  • 3.1 A Two-Factor Warm-Up 58
  • 3.2 The Duffie-Kan Framework 62
  • 3.3 Making DNS Arbitrage-Free 64
  • 3.4 Workhorse Models 78
  • 3.5 AFNS Restrictions on A0(3) 83
  • 3.6 Estimation 86
  • 3.7 AFNS Fit and Forecasting 90






4 Extensions 96
  • 4.1 Variations on the Basic Theme 96
  • 4.2 Additional Yield Factors 105
  • 4.3 Stochastic Volatility 113
  • 4.4 Macroeconomic Fundamentals 117






5 Macro-Finance 126
  • 5.1 Macro-Finance Yield Curve Modeling 126
  • 5.2 Macro-Finance and AFNS 131
  • 5.3 Evolving Research Directions 144






6 Epilogue 149
  • 6.1 Is Imposition of No-Arbitrage Helpful? 151
  • 6.2 Is AFNS the Only Tractable A0(3) Model? 153
  • 6.3 Is AFNS Special? 155






Appendixes 159

Appendix A Two-Factor AFNS Calculations 161
  • A.1 Risk-Neutral Probability 161
  • A.2 Euler Equation 163






Appendix B Details of AFNS Restrictions 166
  • B.1 Independent-Factor AFNS 168
  • B.2 Correlated-Factor AFNS 171






Appendix C The AFGNS Yield-Adjustment Term 174

Bibliography 179

Index 197

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