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Alternative to Nelson-Siegel like parameteric yield curve models with non-negative constraint
Posted: March 17th, 2015, 9:43 pm
by Buran
Nelson-Siegel or Svensson yield curve models, and any number of their brothers, it is possible to come to negative forward or par yield rates. What is a reasonable alternative parametric yield curve shapes that would prevent the negative yields?
Alternative to Nelson-Siegel like parameteric yield curve models with non-negative constraint
Posted: March 18th, 2015, 2:27 am
by DavidJN
Why do you wish to impose a non-negative yield constraint? More than 2 trillion of sovereign and other debt currently trades at negative yields.
Alternative to Nelson-Siegel like parameteric yield curve models with non-negative constraint
Posted: March 18th, 2015, 12:41 pm
by Buran
1. US Treasuries are not negative (except maybe one blip a few years ago).2. When you fit Nelson-Siegel sometimes you may end up with negative rates in the middle of the curve, e.g. 1 year bill or 2 year swap. That never happened.So, I'm looking at the parametric forward curve functional form which doesn't allow this to happen.