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Term structure of interest rates estimation using rational Chebyshev functions

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  • Polychronis Manousopoulos
  • Michalis Michalopoulos

Abstract

We present a novel method for modeling yield curves using rational Chebyshev functions. Our motivation is based on both their suitable mathematical properties as well as their successful application record, mainly in nonfinancial areas. We provide an interpretation of the proposed model in terms of a level–slope–curvature perspective, and we indicate methods for identifying the model’s parameters based on this interpretation. We present the results of in-sample and out-of-sample tests of the proposed model in comparison with popular parsimonious models. The tests indicate that the proposed model is competitive in terms of its performance as well as its properties. Copyright Springer-Verlag Italia 2015

Suggested Citation

  • Polychronis Manousopoulos & Michalis Michalopoulos, 2015. "Term structure of interest rates estimation using rational Chebyshev functions," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 38(2), pages 119-146, October.
    • Handle: RePEc:spr:decfin:v:38:y:2015:i:2:p:119-146
    DOI: 10.1007/s10203-014-0161-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Yield curve; Term structure of interest rates; Rational Chebyshev functions; C51; E43; G12;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • 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

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