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Comparison of non-linear optimization algorithms for yield curve estimation

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  • Manousopoulos, Polychronis
  • Michalopoulos, Michalis
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    Abstract

    The yield curve is a very important financial tool used in investment and policy decisions. Its estimation from market data is essentially a non-linear optimization problem. In this paper, we compare a diversity of non-linear optimization algorithms for estimating yield curves based on actual bond market data and conclude that certain classes of algorithms are more effective due to the nature of the problem.

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    File URL: http://www.sciencedirect.com/science/article/B6VCT-4PNM484-5/2/94f98fcc61d2130c042d3f9c34e3c893
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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 2 (January)
    Pages: 594-602

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:594-602

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Finance OR in banking Non-linear programming Yield curve;

    References

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    1. Paul Soderlind & Lars E. O. Svensson, 1997. "New Techniques to Extract Market Expectations from Financial Instruments," NBER Working Papers 5877, National Bureau of Economic Research, Inc.
    2. Ioannides, Michalis, 2003. "A comparison of yield curve estimation techniques using UK data," Journal of Banking & Finance, Elsevier, vol. 27(1), pages 1-26, January.
    3. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
    4. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
    5. Francis X. Diebold & Canlin Li, 2002. "Forecasting the Term Structure of Government Bond Yields," Center for Financial Institutions Working Papers 02-34, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Svensson, L.E.O., 1994. "Estimating and Interpreting Foreward Interest Rates: Sweden 1992-1994," Papers 579, Stockholm - International Economic Studies.
    7. Attila Csajbók, 1998. "Zero-coupon yield curve estimation from a central bank perspective," MNB Working Papers 1998/2, Magyar Nemzeti Bank (the central bank of Hungary).
    8. Brousseau, Vincent, 2002. "The functional form of yield curves," Working Paper Series 0148, European Central Bank.
    9. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
    10. Eglese, R. W., 1990. "Simulated annealing: A tool for operational research," European Journal of Operational Research, Elsevier, vol. 46(3), pages 271-281, June.
    11. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711.
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