Skip to main content

Gaussian estimation and forecasting of the U.K. yield curve with multi-factor continuous-time models

Tunaru, Diana (2017) Gaussian estimation and forecasting of the U.K. yield curve with multi-factor continuous-time models. International Review of Financial Analysis, 52 . pp. 119-129. ISSN 1057-5219. (doi:10.1016/j.irfa.2017.05.003) (KAR id:65972)

PDF Author's Accepted Manuscript
Language: English


Download (417kB) Preview
[thumbnail of 5b. DIANA-IRFAGaussianUKCLEAN.pdf]
Preview
This file may not be suitable for users of assistive technology.
Request an accessible format
Official URL:
http://dx.doi.org/10.1016/j.irfa.2017.05.003

Abstract

In this paper we will estimate the term structure of daily U.K. interest rates using a range of more flexible continuous-time models. A multivariate framework is employed for the dynamic estimation and forecasting of four classic models over the eventful period of 2000–2013. The extensions are applied in two stages to four- and five-factor formulations, allowing us to assess the potential benefit of gradually increasing the model-flexibility. The Gaussian estimation methods for dynamic continuous-time models yield insightful comparative results concerning the two different segments of the yield curve, short- and long-term, respectively. In terms of in-sample performance the newly extended multi-factor general model is superior to all other restricted models. When compared to benchmark discrete-time models, the out-of-sample performance of the extended continuous-time models seems to be consistently superior with regards to the short-term segment of the yield curve.

Item Type: Article
DOI/Identification number: 10.1016/j.irfa.2017.05.003
Uncontrolled keywords: continuous-time models, forecasting, multi-factor diffusion models with feedbacks, term structure of interest rates, U.K. yield curve, Gaussian estimation
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Thomas Wiffen
Date Deposited: 08 Feb 2018 14:38 UTC
Last Modified: 07 Oct 2021 13:39 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/65972 (The current URI for this page, for reference purposes)
Tunaru, Diana: https://orcid.org/0000-0002-8351-4458
  • Depositors only (login required):

Downloads

Downloads per month over past year