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Estimating the long rate and its volatility

Author

Listed:
  • Annaert, Jan
  • Claes, Anouk G.P.
  • De Ceuster, Marc J.K.
  • Zhang, Hairui

Abstract

We estimate the long rate and its volatility within the Svensson framework. The procedure that best extrapolates the longest observable rate and its volatility is a 2-dimensional grid search conditioned on the ridge regression suggested by Annaert et al. (2013).

Suggested Citation

  • Annaert, Jan & Claes, Anouk G.P. & De Ceuster, Marc J.K. & Zhang, Hairui, 2015. "Estimating the long rate and its volatility," Economics Letters, Elsevier, vol. 129(C), pages 100-102.
    • Handle: RePEc:eee:ecolet:v:129:y:2015:i:c:p:100-102
    DOI: 10.1016/j.econlet.2015.02.022
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    References listed on IDEAS

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    1. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    2. Dimitris Politis & Halbert White, 2004. "Automatic Block-Length Selection for the Dependent Bootstrap," Econometric Reviews, Taylor & Francis Journals, vol. 23(1), pages 53-70.
    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. Ashley, Richard, 1998. "A new technique for postsample model selection and validation," Journal of Economic Dynamics and Control, Elsevier, vol. 22(5), pages 647-665, May.
    5. Miles Livingston, 1987. "Flattening Of Bond Yield Curves," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 10(1), pages 17-24, March.
    6. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
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    Cited by:

    1. Antonio Díaz & Marta Tolentino, 2020. "Risk Management for Bonds with Embedded Options," Mathematics, MDPI, vol. 8(5), pages 1-12, May.

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    More about this item

    Keywords

    Long rate; Nelson–Siegel model; Svensson model; Ridge regression;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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