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Yield Curve Modeling and ForecastingThe Dynamic Nelson-Siegel Approach$
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Francis X. Diebold and Glenn D. Rudebusch

Print publication date: 2013

Print ISBN-13: 9780691146805

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691146805.001.0001

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Chapter:
(p.96) 4 Extensions
Source:
Yield Curve Modeling and Forecasting
Author(s):

Francis X. Diebold

Glenn D. Rudebusch

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691146805.003.0004

This chapter highlights aspects of the vibrant ongoing research program associated with the ideas developed in earlier chapters. It begins with a collage-style sketch of work involving Bayesian analysis, functional form for factor loadings, term structures of credit spreads, and nonlinearities. It then discusses in greater detail the incorporation of more than three yield factors. Next, it treats stochastic volatility in both dynamic Nelson–Siegel model (DNS) and arbitrage-free DNS (AFNS) environments, with some attention to the issue of unspanned stochastic volatility. Finally, it discusses the incorporation of macroeconomic fundamentals in their relation to bond yields. It also introduces aspects of modeling real versus nominal yields in DNS/AFNS environments, a theme treated in detail in Chapter 5.

Keywords:   dynamic Nelson–Siegel model, yield curve models, arbitrage-free Nelson–Siegel models, Bayesian analysis, factor loadings, credit spreads, stochastic volatility

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