The Forecasting Accuracy of Models of the Term Structure of Interest Rates PDF Download

Author: Alan David Kraus
Publisher:
ISBN:
Category : Interest
Languages : en
Pages : 430

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Author: Yunjong Eo
Publisher:
ISBN:
Category :
Languages : en
Pages : 44

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Book Description
We compare the out-of-sample predictive accuracy of a mixture of bond yield models with that of the individual models. The individual models considered here are the dynamic Nelson--Siegel model, arbitrage-free Nelson--Siegel model, and random-walk model. Out-of-sample forecasts for U.S. bond yields show that none of the individual models dominates the others across all maturities and forecast horizons, although the random-walk model performs well in most cases. We then assess the predictive accuracy for two subsamples: before and during a period of zero interest rates. In the first subperiod, overall the mixture of the three models outperforms the individual models, whereas the random-walk model seems to forecast better than all combinations for the period of zero interest rates. We show that these mixed results on the forecasting ability of the mixture models across the subsamples can be attributed to the zero interest-rate policy.

Author: David Meiselman
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 96

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Author: Stefan Trück
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

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Book Description
We investigate the forecasting performance of popular dynamic factor models of the yield curve after the global financial crisis (GFC). This time period is characterized by an unprecedented low and non-volatile interest rate environment in most major economies. We focus on the dynamic Nelson-Siegel model and regressions on principal components and use a dataset of monthly US treasury bond yields to show that subsequent to the GFC both models are significantly outperformed by the random walk no-change forecast. Especially for short and medium term yields the random walk is up to ten times more accurate. Interestingly, these results are not picked up by traditional global forecast evaluation metrics. We show that combining forecasts mitigates the model uncertainty and improves the disappointing forecasting accuracy especially after the GFC.

Author: Michiel De Pooter
Publisher:
ISBN:
Category :
Languages : en
Pages : 52

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Book Description
We assess the relevance of parameter uncertainty, model uncertainty, and macroeconomic information for forecasting the term structure of interest rates. We study parameter uncertainty by comparing Bayesian inference with frequentist estimation techniques, and model uncertainty by combining forecasts from individual models. We incorporate macroeconomic information in yield curve models by extracting common factors from a large panel of macro series. Our results show that accounting for parameter uncertainty does not improve the forecast performance of individual models. The predictive accuracy of single models varies over time considerably and we demonstrate that mitigating model uncertainty by combining forecasts leads to substantial gains in predictability. Combining forecasts using a weighting method that is based on relative historical performance results in highly accurate forecasts. The gains in terms of forecast performance are substantial, especially for longer maturities, and are consistent over time. In addition, we find that adding macroeconomic factors generally is beneficial for improving out-of-sample forecasts.

Author: Ken O. Kortanek
Publisher: John Wiley & Sons
ISBN:
Category : Business & Economics
Languages : en
Pages : 248

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Book Description
This book offers a new approach to interest rate and modeling term structure by using models based on optimization of dynamical systems, rather than the traditional stochastic differential equation models. The authors use dynamic models to estimate the term structure of interest rates and show the reader how to build their own numerical simulations. It includes software that will enable readers to simulate the various models covered in the book.

Author:
Publisher:
ISBN: 9789289910408
Category :
Languages : en
Pages : 28

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Book Description
The dynamic behavior of the term structure of interest rates is difficult to replicate with models, and even models with a proven track record of empirical performance have underperformed since the early 2000s. On the other hand, survey expectations are accurate predictors of yields, but only for very short maturities. We argue that this is partly due to the ability of survey participants to incorporate information about the current state of the economy as well as forward-looking information such as that contained in monetary policy announcements. We show how the informational advantage of survey expectations about short yields can be exploited to improve the accuracy of yield curve forecasts given by a base model. We do so by employing a flexible projection method that anchors the model forecasts to the survey expectations in segments of the yield curve where the informational advantage exists and transmits the superior forecasting ability to all remaining yields. The method implicitly incorporates into yield curve forecasts any information that survey participants have access to, without the need to explicitly model it. We document that anchoring delivers large and significant gains in forecast accuracy for the whole yield curve, with improvements of up to 52% over the years 2000-2012 relative to the class of models that are widely adopted by financial and policy institutions for forecasting the term structure of interest rates.

Author: R. S. Masera
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 232

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Book Description

Author: Carlo Altavilla
Publisher:
ISBN:
Category : Economic forecasting
Languages : en
Pages : 27

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Book Description
The dynamic behavior of the term structure of interest rates is difficult to replicate with models, and even models with a proven track record of empirical performance have underperformed since the early 2000s. On the other hand, survey expectations are accurate predictors of yields, but only for very short maturities. We argue that this is partly due to the ability of survey participants to incorporate information about the current state of the economy as well as forward-looking information such as that contained in monetary policy announcements. We show how the informational advantage of survey expectations about short yields can be exploited to improve the accuracy of yield curve forecasts given by a base model. We do so by employing a flexible projection method that anchors the model forecasts to the survey expectations in segments of the yield curve where the informational advantage exists and transmits the superior forecasting ability to all remaining yields. The method implicitly incorporates into yield curve forecasts any information that survey participants have access to, without the need to explicitly model it. We document that anchoring delivers large and significant gains in forecast accuracy for the whole yield curve, with improvements of up to 52% over the years 2000-2012 relative to the class of models that are widely adopted by financial and policy institutions for forecasting the term structure of interest rates.

Author: Rajna Gibson
Publisher: Now Publishers Inc
ISBN: 1601983727
Category : Business & Economics
Languages : en
Pages : 171

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Book Description
Modeling the Term Structure of Interest Rates provides a comprehensive review of the continuous-time modeling techniques of the term structure applicable to value and hedge default-free bonds and other interest rate derivatives.