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Comparison of non-linear optimization algorithms for yield curve estimation

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  • Manousopoulos, Polychronis
  • Michalopoulos, Michalis

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.

Suggested Citation

  • Manousopoulos, Polychronis & Michalopoulos, Michalis, 2009. "Comparison of non-linear optimization algorithms for yield curve estimation," European Journal of Operational Research, Elsevier, vol. 192(2), pages 594-602, January.
  • Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:594-602
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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. Soderlind, Paul & Svensson, Lars, 1997. "New techniques to extract market expectations from financial instruments," Journal of Monetary Economics, Elsevier, pages 383-429.
    3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
    4. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    5. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
    6. Brousseau, Vincent, 2002. "The functional form of yield curves," Working Paper Series 0148, European Central Bank.
    7. Eglese, R. W., 1990. "Simulated annealing: A tool for operational research," European Journal of Operational Research, Elsevier, vol. 46(3), pages 271-281, June.
    8. 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.
    9. 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.
    10. Attila Csajbók, 1998. "Zero-coupon yield curve estimation from a central bank perspective," MNB Working Papers 1998/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    11. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
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    Citations

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    Cited by:

    1. Lorenčič Eva, 2016. "Testing the Performance of Cubic Splines and Nelson-Siegel Model for Estimating the Zero-coupon Yield Curve," Naše gospodarstvo/Our economy, De Gruyter Open, vol. 62(2), pages 42-50, June.
    2. Blomvall, Jörgen, 2017. "Measurement of interest rates using a convex optimization model," European Journal of Operational Research, Elsevier, vol. 256(1), pages 308-316.
    3. Maciel, Leandro & Gomide, Fernando & Ballini, Rosangela, 2016. "A differential evolution algorithm for yield curve estimation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 129(C), pages 10-30.

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