IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1594.html
   My bibliography  Save this paper

Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills

Author

Listed:
  • Charles R. Nelson
  • Andrew F. Siegel

Abstract

A new model is proposed for representinq the term to maturity structure of interest rates at a point in time.The model produces humped, monotonic and S-shaped yield curves using four parameters. Conditional on a time decay parameter, estimates of the other three are obtained by least squares. Yield curves for thirty-seven sets of U.S. Treasury bill yields with maturities up to one year are presented. The median standard deviation of fit is just over seven basis points and the corresponding median R-squared is .96. Study of residuals suggests the existence of specific maturity effects not previously identified. Using the models to predict the price of a long term bond provides a diagnostic check and suggests directions for further research.

Suggested Citation

  • Charles R. Nelson & Andrew F. Siegel, 1985. "Parsimoneous Modeling of Yield Curves for U.S. Treasury Bills," NBER Working Papers 1594, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1594
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1594.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Echols, Michael E. & Elliott, Jan Walter, 1976. "A Quantitative Yield Curve Model for Estimating the Term Structure of Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(1), pages 87-114, March.
    2. McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
    3. Richard, Scott F., 1978. "An arbitrage model of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 33-57, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Bordo & Arunima Sinha, 2016. "A Lesson from the Great Depression that the Fed Might have Learned: A Comparison of the 1932 Open Market Purchases with Quantitative Easing," NBER Working Papers 22581, National Bureau of Economic Research, Inc.
    2. P. Jenkins, Stephen & Gardiner, Karen & Burgess, Simon & Propper, Carol, 2000. "Measuring income risk," ISER Working Paper Series 2000-15, Institute for Social and Economic Research.
    3. Ahn, Hie Joo, 2023. "Duration structure of unemployment hazards and the trend unemployment rate," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    4. Michael D. Bordo & Arunima Sinha, 2023. "The 1932 Federal Reserve Open‐Market Purchases as a Precedent for Quantitative Easing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1177-1212, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722, Elsevier.
    2. Richard Deaves & Mahmut Parlar, 2000. "A generalized bootstrap method to determine the yield curve," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(4), pages 257-270.
    3. Hall, A.D, 1999. "Parametric forecasts of Australian yield curves," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 541-549.
    4. Christopher M. Bilson & Timothy J. Brailsford & Luke J. Sullivan & Sirimon Treepongkaruna, 2008. "Pricing Bonds in the Australian Market," Australian Journal of Management, Australian School of Business, vol. 33(1), pages 123-143, June.
    5. Emmanuelle Clément & Christian Gourieroux & Alain Monfort, 1995. "Linear Factor Models and the Term Structure of Interest Rates," Annals of Economics and Statistics, GENES, issue 40, pages 37-65.
    6. Pham, Toan M., 1998. "Estimation of the term structure of interest rates: an international perspective," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 265-283, September.
    7. Gouriéroux, Christian & Scaillet, O., 1994. "Estimation of the term structure from bond data," CEPREMAP Working Papers (Couverture Orange) 9415, CEPREMAP.
    8. Christopher F. Baum & Olin Liu, 1994. "An Alternative Strategy for Estimation of a Nonlinear Model of the Term Structure of Interest Rates," Boston College Working Papers in Economics 275, Boston College Department of Economics.
    9. Lin, Bing-Huei, 1999. "Fitting the term structure of interest rates for Taiwanese government bonds," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 331-352, November.
    10. Andrea J. Heuson, 1988. "The Term Premia Relationship Implicit In The Term Structure Of Treasury Bills," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(1), pages 13-20, March.
    11. Huse, Cristian, 2011. "Term structure modelling with observable state variables," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3240-3252.
    12. Ilias Lekkos, 2003. "Cross‐sectional Restrictions on the Spot and Forward Term Structures of Interest Rates and Panel Unit Root Tests," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(5‐6), pages 799-828, June.
    13. Barzanti, Luca & Corradi, Corrado, 1998. "A note on interest rate term structure estimation using tension splines," Insurance: Mathematics and Economics, Elsevier, vol. 22(2), pages 139-143, June.
    14. Diego Mauricio Vásquez & Luis Fernando Melo, 2005. "Estimación de la estructura a plazos de las tasas de interés en Colombia por medio del método de funciones B-spline cúbicas," Revista de Economía del Rosario, Universidad del Rosario, June.
    15. Edward J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 1999. "Explaining the Rate Spread on Corporate Bonds," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-082, New York University, Leonard N. Stern School of Business-.
    16. Lauren Stagnol, 2017. "Introducing global term structure in a risk parity framework," Working Papers hal-04141648, HAL.
    17. Brian Barnard, 2019. "Interest Rate Term Structure Decomposition: An Axiomatic," Applied Economics and Finance, Redfame publishing, vol. 6(1), pages 84-96, January.
    18. Gauthier, Geneviève & Simonato, Jean-Guy, 2012. "Linearized Nelson–Siegel and Svensson models for the estimation of spot interest rates," European Journal of Operational Research, Elsevier, vol. 219(2), pages 442-451.
    19. Luis Eduardo Arango & Luis Fernando Melo, 2002. "Estimación de la Estructura a Plazo de las Tasas de Interés en Colombia," Borradores de Economia 2594, Banco de la Republica.
    20. Houweling, Patrick & Hoek, Jaap & Kleibergen, Frank, 2001. "The joint estimation of term structures and credit spreads," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 297-323, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1594. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.