Modelling the yield curve with Orthonormalised Laguerre Polynomials: A consistent cross-sectional and inter-temporal approach
Krippner, L. (2003). Modelling the yield curve with Orthonormalised Laguerre Polynomials: A consistent cross-sectional and inter-temporal approach. (Department of Economics Working Paper Series, Number 2/03). Hamilton, New Zealand: University of Waikato.
Permanent Research Commons link: http://hdl.handle.net/10289/1652
This article proposes the orthonormalised Laguerre polynomial (OLP) model of the yield curve, a generic linear model that is both cross-sectionally consistent (that is, it reliably fits the yield curve at a given point in time), and inter-temporally consistent (that is, the cross-sectional parameters are shown to be consistent over time within the expectations hypothesis framework). The OLP model generalises the exponential-polynomial model for a single yield curve, as originally proposed by Nelson and Siegel (1987), and also allows for the simultaneous modelling of other same-currency yield curves that have instrument-specific differences (such as default risk), as in Houweling, Hoek and Kleibergen (2001). New Zealand data is used to illustrate the empirical application of the OLP model.
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