TY  - JOUR
AU  - Christensen,Jens H.E.
AU  - Diebold,Francis X.
AU  - Rudebusch,Glenn D.
TI  - An Arbitrage-Free Generalized Nelson-Siegel Term Structure Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14463
PY  - 2008
Y2  - November 2008
UR  - http://www.nber.org/papers/w14463
L1  - http://www.nber.org/papers/w14463.pdf
N1  - Author contact info:
Jens Christensen
Federal Reserve Bank of San Francisco
Economic Research, MS 1130
101 Market Street
San Francisco, CA  94105-9967
E-Mail: jens.christensen@sf.frb.org

Francis X. Diebold
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA  19104-6297
Tel: 215/898-1507
Fax: 212/573-4217
E-Mail: fdiebold@sas.upenn.edu

Glenn Rudebusch
Federal Reserve Bank of San Francisco
Economic Research, MS 1130
101 Market Street
San Francisco, CA  94105-9967
Tel: 415-974-3173
E-Mail: glenn.rudebusch@sf.frb.org
AB  - The Svensson generalization of the popular Nelson-Siegel term structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson-Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed, we show that the factor loadings of the Svensson generalization cannot be obtained in a standard finance arbitrage-free affine term structure representation. Therefore, we introduce a closely related generalized Nelson-Siegel model on which the no-arbitrage condition can be imposed. We estimate this new arbitrage-free generalized Nelson-Siegel model and demonstrate its tractability and good in-sample fit.
ER  -