Models of the yield curve and the curvature of the implied forward rate function
AbstractWe examine several alternative models of the UK gilt yield curve using daily data for the period 12 July 1996–10 February 2010. We select the best models according to two criteria: low out of sample errors in pricing bonds and low curvature of the implied forward rate curve function. We suggest additions to some of the models that significantly improve their performance. Some of the new models out perform those typically used by the central banks. In particular this paper suggests that the model used by the Canadian Central Bank which both outperforms other models and is particularly easy to estimate, is well suited to the UK gilt market.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 36 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/jbf
Bonds; Yield curve; Forward rate; Discount rate; Curve fitting;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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