Calibrating the Nelson-Siegel-Svensson Model by Genetic Algorithm

Autor:	Lakhany, Asif, Pintar, Andrej, Zhang, Amber
Rok vydání:	2021
Předmět:	Quantitative Finance - Risk Management Quantitative Finance - Computational Finance I.2.8
Druh dokumentu:	Working Paper
Popis:	Accurately fitting the term structure of interest rates is critical to central banks and other market participants. The Nelson-Siegel and Nelson-Siegel-Svensson models are probably the best-known models for this purpose due to their intuitive appeal and simple representation. However, this simplicity comes at a price. The difficulty in calibrating these models is twofold. Firstly, the objective function being minimized during the calibration procedure is nonlinear and has multiple local optima. Secondly, there is strong co-dependence among the model parameters. As a result, their estimated values behave erratically over time. To avoid these problems, we apply a heuristic optimization method, specifically the Genetic Algorithm approach, and show that it is able to construct reliable interest rate curves and stable model parameters over time, regardless of the shape of the curves. Comment: 14 pages
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/2108.01760 Zobrazit plný text záznamu View this record from Arxiv