File Name: Yield Curve – Curve Interpolation NS
Location: Modeling Toolkit | Yield Curve | Curve Interpolation NS
Brief Description: Estimates and models the term structure of interest rates and yield curve approximation using a curve interpolation method
Requirements: Modeling Toolkit, Risk Simulator
Modeling Toolkit Function Used: MTYieldCurveNS
This is the Nelson-Siegel (NS) Interpolation model for generating the term structure of interest rates and yield curve estimation. Some econometric modeling techniques are required to calibrate the values of several input parameters in this model. Just like the Bliss model in the previous chapter, the NS model (Figure 165.1) is purely an interpolation model, with four estimated parameters. If properly modeled, it can be made to fit almost any yield curve shape. Calibrating the inputs in the NS model requires facility with econometric modeling and error optimization techniques. Typically, if some interest rates exist, a better approach is to use the spline interpolation method (see Chapter 168 for details).
Figure 165.1: NS model
