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Copy of NelsonSiegelYieldCurveModel with Svensson (Feb 2005)

# Copy of NelsonSiegelYieldCurveModel with Svensson (Feb 2005)

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Kurt Hess, kurthess@waikato.ac.nz
25891256.xls Introduction 12/02/2009
IMPORTANT INSTALLATION INFORMATION
Programmed by and copyright Kurt Hess March 2004, kurthess@waikato.ac.nz
Illustration of Extended Nelson & Siegel Spot Rate Model
Fitting Extended Nelson & Siegel Spot Rate with Solver
The SOLVER macros in this workbook will only run if your Excel is set up
as follows.

You must have SOLVER installed with your Excel.
Go to Tools Menu and see whether item Solver appears there.
If it does not, go to Tools - Add-ins and tick "Solver Add-in".

This 1st step will allow you to use SOLVER from Excel but because SOLVER is
also called by a VBA macro, you will also need to establish a reference to the
Solver add-in in the VBA editor:
With a Visual Basic module active, click References on the Tools menu, and
then select the Solver.xla check box under Available References. If Solver.xla
doesn't appear under Available References, click Browse and open Solver.xla
in the \Office\Library subfolder.

Kurt Hess, Waikato Management School
Page 2
25891256.xls Nelson Siegel with Svensson 12/02/2009
Illustration of Extended Nelson & Siegel Spot Rate Model with Svensson 1994 Extension
programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz
Time to maturity
m
3.3
33.00
Long-run levels of interest rates
5.2%
52
Short-run component
2.2%
122
Medium-term component
8.1%
81
determines magnitude and the direction of the hump
Decay parameter 1
1.050
105
Decay parameter 2
1.240
124
Svensson 1994 Extension
0.04
35
Spot rate at time t
8.9650%
#VALUE! with VBA Function
Components of N&S spot rate
Comp 1
5.200%
Comp 2
2.098%
Comp 3
0.362%
Svensson (1994) Extension
Comp 4
0.134%

\u03b20 \u03b21 \u03b22

\u03c41
determines decay ofs h or t-term component, must be > 0
\u03c42
determines decay ofme d iu m-term component, must be > 0
\u03b23
rt,i

\u03b20
\u03b21*((1-EXP(-m/tau1))/(m/tau1))
\u03b22*((1-EXP(-m/tau1))/(m/tau1)-EXP(-m/tau1))

\u03b23*((1-EXP(-m/tau2))/(m/tau2)-EXP(-m/tau2))
0
2
4
6
8
10
12
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
8.97%
0
2
4
6
8
1 0
1 2
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
rt , j\ue000 m ,\u0398\ue001= \u03b20\ue002 \u03b21
\ue000
1\u2212e
\ue000
\u2212
m
\u03c41\ue001
m
\u03c41
\ue001
\ue002\u03b22
\ue000
1\u2212e
\ue000
\u2212
m
\u03c4
1\ue001
m
\u03c41
\u2212
e
\ue000
\u2212m
\u03c41\ue001
\ue002\u03b23
1\u2212e
m/ \u03c42
m
\u03c42
\u2212
e
m/ \u03c4
2
\ue001
\ue002\u03b5t, j
2
Kurt Hess, Waikato Management School
Page 3
25891256.xls Fitting Bond Universe 12/02/2009
Fitting Nelson & Siegel / Svensson Spot Rate with Solver
programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz
Time to maturity
m
4.9
49
0
Long-run levels of interest rates
7.31% 73.12
Short-run component
-2.81% 71.88
Medium-term component
19.30% 193.04determines magnitude and the direction of the hump
Decay parameter 1
1.585 158.55
Decay parameter 2
1.773 177.28
Svensson 1994 Extension
-0.18 -176.25optional parameter proposed by Svensson (1994)
Spot rate at time t
6.6644%
Objective Functions
#VALUE!
#VALUE!
Initial Guess Values:
Bond Data
Short-term rate
4.50%
Settlement date
14-Feb-99
Issuer
Coupon Maturity
Bid
Mid Clean Mid Dirty Model Price Duration
NZ Government
6.50%
15-Feb-00 101.563
100.583
101.07% #VALUE! #VALUE!
0.96
0.36
#VALUE!
NZ Government
8.00%
15-Feb-01 102.786
102.854
102.82% #VALUE! #VALUE!
1.82
0.19
#VALUE!
NZ Government
10.00%
15-Mar-02 108.406
108.526
108.47% #VALUE! #VALUE!
2.65
0.13
#VALUE!
NZ Government
5.50%
15-Apr-03
96.673
96.827
96.75% #VALUE! #VALUE!
3.71
0.09
#VALUE!
NZ Government
8.00%
15-Apr-04 105.034
105.234
105.13% #VALUE! #VALUE!
4.25
0.08
#VALUE!
NZ Government
8.00%
15-Nov-06 106.518
106.809
106.66% #VALUE! #VALUE!
5.88
0.06
#VALUE!
NZ Government
7.00%
15-Jul-09 100.549
100.903
100.73% #VALUE! #VALUE!
7.54
0.05
#VALUE!
NZ Government
6.00%
15-Nov-11
91.666
92.049
91.86% #VALUE! #VALUE!
8.77
0.04
#VALUE!
Total
1
Formula Objective Function
Extended Nelson Siegel Model with Svensson (1994) beta3 extension (parameters explained on top)
D: Duration

\u03b20 \u03b21 \u03b22

\u03c41
determines decay ofsh o rt-term component, must be > 0
\u03c42
determines decay ofmed i um-term component, must be > 0
\u03b23
rt,i
see formulas
Non-weighted objective function x103
Inverse duration weighted function x 105
Weights (wi)
(cheap) / rich
0
1
2
3
4
5
6
7
8
9
10
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
6.66%
0
1
2
3
4
5
6
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
0
.
7 2 1 4 1
Minimize
Minimize
Default Values
Set Random Values
S t
ep
through
o p tim iz a tio n
m in
\ue000\u2211
i=1
N
\ue000w
i\u03b5 i\ue001
2
\ue001
w
i=
1/D
i
\u2211
j=1
N
1/D
j
\u03b5=\ue003
P
\u2212
P
rt , j\ue000 m ,\u0398\ue001= \u03b20\ue002 \u03b21
\ue000
1\u2212e
\ue000
\u2212m
\u03c41\ue001
m
\u03c41
\ue001
\ue002\u03b2
2
\ue000
1\u2212e
\ue000
\u2212m
\u03c4
1\ue001
m
\u03c41
\u2212e
\ue000
\u2212
m
\u03c41\ue001
\ue002\u03b2
3
1\u2212e
\u2212
m/ \u03c4
2
m
\u03c42
\u2212e
m/ \u03c4
2
\ue001
\ue002\u03b5t, j
w ith
\u03b5
~N
0,\u03c3
2
Before using the minimization macros, you must establish a reference to the

Solver add-in. With a Visual Basic module active, click References on the Tools menu,
and then select the Solver.xla check box under Available References. If Solver.xla
doesn't appear under Available References, click Browse and open Solver.xla in the
\Office\Library subfolder.