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Empirical Assessment of the Forecasting Performance and Robustness of the Dynamic Nelson-Siegel: A Two-step vs. One-step comparison

Espitia, Santiago
(2023)

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Details

Supervisors
Vrins, Frédéric
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
The Dynamic Nelson-Siegel is a popular model for forecasting interest rates. However, the DNS has many variations and estimation procedures, it is not always clear which one is the most appropriate. Following an empirical out-of-sample approach, we first analyse various criteria for fixing the shape parameter in the context of the two-step estimation method of the DNS. We then compare the two-step and one-step approaches on market and simulated data. Lastly, we perform a robustness assessment of the two-step and one-step independent-factor DNS forecasting performance with respect to key parameters and starting values.