Estimating the yield curve using calibrated radial basis function networks

Abstract

Nonparametric approaches of estimating the yield curve have been widely used as alternative approaches that supplement parametric approaches. In this paper, we propose a novel yield curve estimating algorithm based on radial basis function networks, which is a nonparametric approach. The proposed method is devised to improve accuracy and smoothness of the fitted curve. Numerical experiments are conducted for 57 U.S. Treasury securities with different maturities and demonstrate a significant performance improvement to reduce test error compared to other existing algorithms. © Springer-Verlag Berlin Heidelberg 2005.