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Comparison of non-linear optimization algorithms for yield curve estimation

  • Manousopoulos, Polychronis
  • Michalopoulos, Michalis
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    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.

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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 192 (2009)
    Issue (Month): 2 (January)
    Pages: 594-602

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    Handle: RePEc:eee:ejores:v:192:y:2009:i:2:p:594-602
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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    1. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
    2. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, August.
    3. Attila Csajbók, 1998. "Zero-coupon yield curve estimation from a central bank perspective," MNB Working Papers 1998/2, Magyar Nemzeti Bank (the central bank of Hungary).
    4. 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.
    5. 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.
    6. Soderlind, Paul & Svensson, Lars, 1997. "New techniques to extract market expectations from financial instruments," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 383-429, October.
    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. Lars E. O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates; Sweden 1992-1994," IMF Working Papers 94/114, International Monetary Fund.
    9. Bolder, David & Streliski, David, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
    10. Brousseau, Vincent, 2002. "The functional form of yield curves," Working Paper Series 0148, European Central Bank.
    11. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
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