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Estimation of the yield curve for Costa Rica using combinatorial optimization metaheuristics applied to nonlinear regression

Author

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  • Andres Quiros-Granados
  • JAvier Trejos-Zelaya

Abstract

The term structure of interest rates or yield curve is a function relating the interest rate with its own term. Nonlinear regression models of Nelson-Siegel and Svensson were used to estimate the yield curve using a sample of historical data supplied by the National Stock Exchange of Costa Rica. The optimization problem involved in the estimation process of model parameters is addressed by the use of four well known combinatorial optimization metaheuristics: Ant colony optimization, Genetic algorithm, Particle swarm optimization and Simulated annealing. The aim of the study is to improve the local minima obtained by a classical quasi-Newton optimization method using a descent direction. Good results with at least two metaheuristics are achieved, Particle swarm optimization and Simulated annealing. Keywords: Yield curve, nonlinear regression, Nelson-

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  • Andres Quiros-Granados & JAvier Trejos-Zelaya, 2019. "Estimation of the yield curve for Costa Rica using combinatorial optimization metaheuristics applied to nonlinear regression," Papers 2001.00920, arXiv.org.
    • Handle: RePEc:arx:papers:2001.00920
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    References listed on IDEAS

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    1. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
    2. Bank for International Settlements, 2005. "Zero-coupon yield curves: technical documentation," BIS Papers, Bank for International Settlements, number 25.
    3. Socha, Krzysztof & Dorigo, Marco, 2008. "Ant colony optimization for continuous domains," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1155-1173, March.
    4. David G. Luenberger & Yinyu Ye, 2008. "Linear and Nonlinear Programming," International Series in Operations Research and Management Science, Springer, edition 0, number 978-0-387-74503-9, April.
    5. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    6. David Bolder & David Stréliski, 1999. "Yield Curve Modelling at the Bank of Canada," Technical Reports 84, Bank of Canada.
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    yield curve; nonlinear regression; nelson-;
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