Polynomial yield curve models for tilting portfolios

Polynomial yield curve models for tilting portfolios

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Article ID: iaor1993332
Country: United Kingdom
Volume: 20
Issue: 2
Start Page Number: 241
End Page Number: 248
Publication Date: Mar 1992
Journal: OMEGA
Authors: ,
Keywords: financial
Abstract:

In this paper the authors discuss the problem of the desired level of accuracy in model specification. In particular they look at the effect of various polynomial representations of the yield curve on the tilting of medium to long term bond portfolios. As will be seen, the tilting of these portfolios is very sensitive to the degree of the polynomial used for estimating the yield curve, implying that great care must be taken when forecasting any changes in the structure of the yield curve for such a exercise.

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