The Affine Arbitrage Free Class Of Nelson Siegel Term Structure Models

Download or read book The Affine Arbitrage-Free Class of written by Jens Henrik Eggert Christensen and published by . This book was released on 2010 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.