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Corporate Bond Yield Curve Estimation for the Croatian Financial Market Using the Nelson-Siegel Model

Author

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  • Ante Toni Vrdoljak

    (University of Split)

Abstract

The corporate bond yield curve is necessary in a variety of actions, from the revaluation to disclosure of those bonds that are overestimated or underestimated, as well as the very essence of possessing valid information necessary to every investor. Corporate bonds in the Croatian financial market bring a larger yield than government bonds, and the existence of a quality corporate bond yield curve is the prerequisite for placing corporate bonds into an optimal portfolio. The corporate bond yield curve in the Croatian financial market on a particular date is estimated in this paper using the Nelson-Siegel model. Besides the model's presentation and explanation of the important terms and conditions in the Croatian financial market, the special value of this paper is in the detailed presentation of the formation of data for the model's evaluation. Finally, the validity of the resulting yield curve is confirmed by testing the model’s parameters and the very high correlation coefficients between the resulting curve and the yield curve of the government bonds.

Suggested Citation

  • Ante Toni Vrdoljak, 2016. "Corporate Bond Yield Curve Estimation for the Croatian Financial Market Using the Nelson-Siegel Model," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(4), pages 269-284.
    • Handle: RePEc:eeb:articl:v:2:y:2016:n:4:p:269-284
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    References listed on IDEAS

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    1. Grum, Andraž, 2006. "The effect of parallel OTC-DVP bond market introduction on yield curve volatility," MPRA Paper 4950, University Library of Munich, Germany.
    2. Christensen, Jens H.E. & Diebold, Francis X. & Rudebusch, Glenn D., 2011. "The affine arbitrage-free class of Nelson-Siegel term structure models," Journal of Econometrics, Elsevier, vol. 164(1), pages 4-20, September.
    3. Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, vol. 115(505), pages 722-744, July.
    4. Ibrahim Burak Kanli & Doruk Kucuksarac & Ozgur Ozel, 2013. "Yield Curve Estimation for Corporate Bonds in Turkey," Working Papers 1326, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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