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Estimating yield curves by Kernel smoothing methods

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  • Linton, Oliver
  • Mammen, Enno
  • Nielsen, Jens Perch
  • Tanggaard, Carsten

Abstract

We introduce a new method for the estimation of discount functions, yield curves and forward curves from government issued coupon bonds. Our approach is non-parametric and does not assume particular functional form for the discount function although we do show how to impose various restrictions in the estimation. Our method is based on Kernel smoothing and is defined as the minimum of some localized population moment condition. The solution to the sample problem is not explicit and our estimation procedure is iterative, rather like the backfitting method of estimating non-parametric models. We establish the asymptotic normality of our methods using the asymptotic representation of our estimator as an infinite series with declining coefficients. The rate of convergence is standard for one-dimensional nonparametric conversion.

Suggested Citation

  • Linton, Oliver & Mammen, Enno & Nielsen, Jens Perch & Tanggaard, Carsten, 1998. "Estimating yield curves by Kernel smoothing methods," SFB 373 Discussion Papers 1999,54, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:199954
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    References listed on IDEAS

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    1. Linton, Oliver B., 2000. "Efficient Estimation Of Generalized Additive Nonparametric Regression Models," Econometric Theory, Cambridge University Press, vol. 16(4), pages 502-523, August.
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    9. Oliver Linton & E. Mammen & J. Nielsen, 1997. "The Existence and Asymptotic Properties of a Backfitting Projection Algorithm Under Weak Conditions," Cowles Foundation Discussion Papers 1160, Cowles Foundation for Research in Economics, Yale University.
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    1. Andrew Jeffrey & Linton, Oliver Linton & Thong Nguyen & Peter C.B. Phillips, 2001. "Nonparametric Estimation of a Multifactor Heath-Jarrow-Morton Model: An Integrated Approach," Cowles Foundation Discussion Papers 1311, Cowles Foundation for Research in Economics, Yale University.

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