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A Rotated Dynamic Nelson†Siegel Model

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  • Ken Nyholm

Abstract

I show how to rotate the factor structure of the well†known Dynamic Nelson†Siegel yield†curve model to enable direct parametrization of the short rate process. This makes it easy to calculate model†implied term premia and to integrate macroeconomic variables into the model in a Taylor†rule†type fashion.

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  • Ken Nyholm, 2018. "A Rotated Dynamic Nelson†Siegel Model," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 113-124, February.
    • Handle: RePEc:bla:ecnote:v:47:y:2018:i:1:p:113-124
    DOI: 10.1111/ecno.12094
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    References listed on IDEAS

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    5. Adrian, Tobias & Crump, Richard K. & Moench, Emanuel, 2013. "Pricing the term structure with linear regressions," Journal of Financial Economics, Elsevier, vol. 110(1), pages 110-138.
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