A segmented and observable yield curve for Colombia

Carlos Castro-Iragorri, Juan Felipe Penã, Cristhian Rodríguez

Research output: Contribution to journalArticlepeer-review

Abstract

Following (Almeida, Ardison, Kubudi, Simonsen, & Vicente, 2018) we implement a segmented three factor Nelson-Siegel model for the yield curve using daily observable bond prices and short term interbank rates for Colombia. The flexible estimation for each segment (short, medium, and long) provides an improvement over the classical Nelson-Siegel approach in particular in terms of in-sample and out-of-sample forecasting performance. A segmented term structure model based on observable bond prices provides a tool closer to the needs of practitioners in terms of reproducing the market quotes and allowing for independent local shocks in the different segments of the curve.

Original languageEnglish (US)
Pages (from-to)179-197
Number of pages19
JournalJournal of Central Banking Theory and Practice
Volume10
Issue number2
DOIs
StatePublished - May 1 2021

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics
  • Strategy and Management

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