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A Segmented and Observable Yield Curve

Author

Listed:
  • Castro, C
  • Peña, J. F.
  • Rodríguez, C

Abstract

Following Almeida et al. (2018) we implement a segmented three factor Nelson-Siegel model for the yield curve using daily observable bond prices and short term inter-bank rates for Colombia. The flexible estimation for each segment (short, medium, and long) provides an improvement over the classical Nelson-Siegel approach in particular in terms of in-sample and out- of-sample forecasting performance. A segmented term structure model based on observable bond prices, provides a tool closer to the needs of practitioners in terms of reproducing the market quotes and allowing for independent local shocks in the different segments of the curve.

Suggested Citation

  • Castro, C & Peña, J. F. & Rodríguez, C, 2019. "A Segmented and Observable Yield Curve," Documentos de Trabajo 17582, Universidad del Rosario.
    • Handle: RePEc:col:000092:017582
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    Keywords

    Term structure; Nelson-Siegel; Preferred habitat theory;
    All these keywords.

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