Author(s)

Patricia Kisbye, Karem Meier

Facultad de Matemática, Astronomía, Física y Computación, Universidad Nacional de Córdoba, Córdoba, Argentina.

Nelson and Siegel curves are widely used to fit the observed term structure of interest rates in a particular date. By the other hand, several interest rate models have been developed such their initial forward rate curve can be adjusted to any observed data, as the Ho-Lee and the Hull and White one factor models. In this work we study the evolution of the forward curve process for each of these models assuming that the initial curve is of Nelson-Siegel type. We conclude that the forward curve process produces curves belonging to a parametric family of curves that can be seen as extended Nelson and Siegel curves. We show that the forward rate curve evolution has a linear or an exponential growth, depending on the particular short rate interest model. We applied the results to Argentinian short and forward rates obtained from the Lebac’s bills yields using the Hull and White short rate model, showing a good estimation of the observed forward rate curve for near dates when the initial forward curve is adjusted with a Nelson and Siegel one.

Nelson-Siegel Curves, Short Rate Interest Models, Consistency

Kisbye, P. and Meier, K. (2017) Consistency of Extended Nelson-Siegel Curve Families with the Ho-Lee and Hull and White Short Rate Models. Journal of Mathematical Finance, 7, 919-930. doi: 10.4236/jmf.2017.74050.