Work detail

Yield Curve Modeling and the Effect of Macroeconomic Drivers: Dynamic Nelson-Siegel Approach

Author: Mgr. Magdalena Patáková
Year: 2012 - summer
Leaders:
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 68
Awards and prizes:
Link:
Abstract: The thesis focuses on the yield curve modeling using the dynamic Nelson-Siegel
approach. We propose two models of the yield curve and apply them on four
currency areas - USD, EUR, GBP and CZK. At rst, we distill the entire yield
curve into the time-varying level, slope and curvature factors and estimate the
parameters for individual currencies. Subsequently, we build a novel model
investigating to what extent unobservable factors of the dynamic Nelson-Siegel
model are determined by macroeconomic drivers.
The main contribution of this thesis resides in the innovative approach to
yield curve modeling with the application of advanced technical tools. Our
primary objective was to increase the accuracy and the estimation power of
the model. Moreover, we applied both models across di erent currency areas,
which enabled us to compare the dynamics of the yield curves as well as
the in
uence of the macroeconomic drivers. Interestingly, the results proved
that both models we developed not only demonstrate strong validity, but also
produce powerful estimates across all examined currencies. In addition, the
incorporated macroeconomic factors contributed to reach higher precision of
the modeling.
Downloadable: Master Theses of Patakova

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