Yield Curve Modeling and Forecasting

Francis X. Diebold; Glenn D. Rudebusch

Francis X. Diebold and Glenn D. Rudebusch

Yield Curve Modeling and Forecasting

The Dynamic Nelson-Siegel Approach

In: The Econometric and Tinbergen Institutes Lectures

Princeton University Press | 2013

https://doi.org/10.1515/9781400845415

Overview
Contents

About this book

Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed.

Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.

Author information

Francis X. Diebold is the Paul F. and Warren S. Miller Professor of Economics at the University of Pennsylvania and professor of finance and statistics at the university's Wharton School. Glenn D. Rudebusch is executive vice president and director of economic research at the Federal Reserve Bank of San Francisco. They are the coauthors of Business Cycles: Durations, Dynamics, and Forecasting (Princeton).

Reviews

[T]he methods presented in the book are of great importance in financial market practice. The book is designed for academics, students, and practitioners working in yield curve modeling and forecasting, and it will be useful for all interested in bond markets and their links with the macroeconomic environment.---Malgorzata Doman, Zentralblatt MATH

"This timely and enlightening book covers the latest developments in the cutting-edge field of yield curve modeling in financial economics and macro-finance. Even active researchers in this area undoubtedly will learn something new. The book is clearly written by two distinguished scholars who share their insights and provide many refreshing clear-cut messages about theoretical and empirical issues in yield curve modeling and forecasting."—Lasse Bork, Aalborg University, Denmark

"This lucid and concise book is unique in the field of term structure modeling. It leads readers from yield curve basics, with a popular and intuitive term structure model, to the frontiers of academia in associated fields. By the end of the book, readers will be inspired and enlightened enough to push those frontiers in the many open research directions noted by the authors, particularly in the emerging field of macro-finance."—Leo Krippner, Reserve Bank of New Zealand

Diebold and Rudebusch have succeeded in writing a milestone book that will be used variously as a standard reference, a guide for future research topics, a text book, or as a convenient introduction to the topics of yield curve modeling and macro-finance. Hence, while forecasting (especially about the future) is always fraught with peril, I'm confident that copies of the book will find their way into many collections, and that they will be actively used when they get there.---Leo Krippner, International Review of Economics and Finance

Frontmatter Free access PDF PDF	i
Contents Free access PDF PDF	vii
Illustrations Access restricted Content is available PDF PDF	ix
Introduction Access restricted Content is available PDF PDF	xi
Preface Access restricted Content is available PDF PDF	xiii
Additional Acknowledgment Access restricted Content is available PDF PDF	xvii
1. Facts, Factors, and Questions Access restricted Content is available PDF PDF	1
2. Dynamic Nelson-Siegel Access restricted Content is available PDF PDF	23
3. Arbitrage-Free Nelson-Siegel Access restricted Content is available PDF PDF	55
4. Extensions Access restricted Content is available PDF PDF	96
5. Macro-Finance Access restricted Content is available PDF PDF	126
6. Epilogue Access restricted Content is available PDF PDF	149
Appendixes
Appendix A: Two-Factor AFNS Calculations Access restricted Content is available PDF PDF	161
Appendix B: Details of AFNS Restrictions Access restricted Content is available PDF PDF	166
Appendix C: The AFGNS Yield-Adjustment Term Access restricted Content is available PDF PDF	174
Bibliography Access restricted Content is available PDF PDF	179
Index Access restricted Content is available PDF PDF	197

(Deutsch)

Yield Curve Modeling and Forecasting

The Dynamic Nelson-Siegel Approach

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