Understanding the dynamic evolution of the yield curve is critical to many financial tasks, including pricing financial assets and their derivatives, managing financial risk, allocating portfolios, structuring fiscal debt, conducting monetary policy, and valuing capital goods. Unfortunately, most yield curve models tend to be theoretically rigorous but empirically disappointing, or empirically successful but theoretically lacking. In this book, Francis Diebold and Glenn Rudebusch propose two extensions of the classic yield curve model of Nelson and Siegel that are both theoretically rigorous and empirically successful. The first extension is the dynamic Nelson-Siegel model (DNS), while the second takes this dynamic version and makes it arbitrage-free (AFNS). Diebold and Rudebusch show how these two models are just slightly different implementations of a single unified approach to dynamic yield curve modeling and forecasting. They emphasize both descriptive and efficient-markets aspects, they pay special attention to the links between the yield curve and macroeconomic fundamentals, and they show why DNS and AFNS are likely to remain of lasting appeal even as alternative arbitrage-free models are developed.
Based on the Econometric and Tinbergen Institutes Lectures, Yield Curve Modeling and Forecasting contains essential tools with enhanced utility for academics, central banks, governments, and industry.
Francis X. Diebold is the Paul F. and Warren S. Miller Professor of Economics at the University of Pennsylvania and professor of finance and statistics at the university's Wharton School. Glenn D. Rudebusch is executive vice president and director of economic research at the Federal Reserve Bank of San Francisco. They are the coauthors of Business Cycles: Durations, Dynamics, and Forecasting (Princeton).
"This lucid and concise book is unique in the field of term structure modeling. It leads readers from yield curve basics, with a popular and intuitive term structure model, to the frontiers of academia in associated fields. By the end of the book, readers will be inspired and enlightened enough to push those frontiers in the many open research directions noted by the authors, particularly in the emerging field of macro-finance."--Leo Krippner, Reserve Bank of New Zealand
"This timely and enlightening book covers the latest developments in the cutting-edge field of yield curve modeling in financial economics and macro-finance. Even active researchers in this area undoubtedly will learn something new. The book is clearly written by two distinguished scholars who share their insights and provide many refreshing clear-cut messages about theoretical and empirical issues in yield curve modeling and forecasting."--Lasse Bork, Aalborg University, Denmark
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Other Princeton books authored or coauthored by Francis X. Diebold:
Another Princeton book authored or coauthored by Glenn D. Rudebusch: