Consistent Nelson and Siegel Yield Curve Models

A popular class of yield curve models is based on
the Nelson and Siegel (1987) (hereafter
NS) approach of fitting yield curve data with
simple functions of maturity. However, NS models are
not theoretically consistent and they also lack an
economic foundation, which limits their wider
application in finance and economics.
This thesis derives an intertemporally-consistent
and arbitrage-free version of the NS model, and
provides an explicit macroeconomic foundation for
that augmented NS (ANS) model. To illustrate the
general applicability of the ANS model, it is then
applied to four distinct topics spanning finance and
economics, each of which are active areas of
research in their own right: i.e (1) forecasting the
yield curve; (2) investigating relationships
between the yield curve and the macroeconomy; (3)
fixed interest portfolio
management; and (4) investigating the uncovered
interest parity hypothesis (UIPH).

Autorentext

Leo Krippner obtained a PhD in finance and economics at the University of Waikato, and works as a Senior Advisor: Research at the Reserve Bank of New Zealand. He has previously worked at the New Zealand Treasury and in private sector funds management.

Klappentext

A popular class of yield curve models is based on the Nelson and Siegel (1987) (hereafterNS) approach of "fitting" yield curve data with simple functions of maturity. However, NS models are not theoretically consistent and they also lack an economic foundation, which limits their wider application in finance and economics.This thesis derives an intertemporally-consistent and arbitrage-free version of the NS model, and provides an explicit macroeconomic foundation for that augmented NS (ANS) model. To illustrate the general applicability of the ANS model, it is then applied to four distinct topics spanning finance and economics, each of which are active areas ofresearch in their own right: i.e (1) forecasting the yield curve; (2) investigating relationshipsbetween the yield curve and the macroeconomy; (3) fixed interest portfoliomanagement; and (4) investigating the uncovered interest parity hypothesis (UIPH).