IMPORTANT INSTALLATION INFORMATION

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.

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

Kurt Hess, kurthess@waikato.ac.nz

266369747.xls Introduction 04/11/2015

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 0
5.2%
52
Short-run component

Medium-term component

8.1%

81

Decay parameter 1

1.050

105

determines decay of short-term component, must be > 0

Decay parameter 2

1.240

124

determines decay of medium-term component, must be > 0

Svensson 1994 Extension

0.035

35

Spot rate at time t

rt,i

2.2%

122
determines magnitude and the direction of the hump

8.9650%
#VALUE! with VBA Function

Components of N&S spot rate

Comp 2

5.200% 0
0.670% 1*((1-EXP(-m/tau1))/(m/tau1))

Comp 3
Comp 4

2.116% 2*((1-EXP(-m/tau1))/(m/tau1)-EXP(-m/tau1))
0.979% *((1-EXP(-m/tau2))/(m/tau2)-EXP(-m/tau2))

Comp 1

Svensson (1994) Extension

12.000%
0.12
10.000%

0.1
8.97%

8.000%

0.08
0.06

6.000%

0.04

4.000%

0.02

2.000%

0
0

10

( )(
m

( )
1e
1

r t , j ( m, ) = 0 + 1

m
Kurt Hess, Waikato Management School
2

+ 2

0.000%

12

( )
1e

10

m
1

(m )

Page 2

1e
+ 3
m
2

m/ 2

m/ 2

12

+ t , j

266369747.xls Nelson Siegel with Svensson 04/11/2015

Fitting Nelson & Siegel / Svensson Spot Rate with Solver

Time to maturity

4.9

programmed by Kurt Hess May 2004, kurthess@waikato.ac.nz

49

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.

0
Long-run levels of interest rates 0
1
Short-run component
Medium-term component

Decay parameter 1

Decay parameter 2
Svensson 1994 Extension

Spot rate at time t

rt,i

7.31% 73.121443
-2.90%
1.580

determines magnitude and the direction of the hump

determines decay of short-term component, must be > 0
determines decay of medium-term component, must be > 0
optional parameter proposed by Svensson (1994)

6.6317%

Set Random Values

Bond Data
Short-term rate
Settlement date

158

1.773 177.28254
-0.176245081 -176.2451

see formulas
Objective Functions
Non-weighted objective function x10 3
Inverse duration weighted function x 10 5
Initial Guess Values:
Default Values

71

19.30% 193.04219

4.50%
14-Feb-99

Issuer
NZ Government
NZ Government
NZ Government
NZ Government
NZ Government
NZ Government
NZ Government
NZ Government

#VALUE!
#VALUE!

Minimize
Minimize

Step
through
optimization

1
0.8

6.63%

0.72256

0.6
0.4
0.2
0

Coupon Maturity
Bid
Ask
Mid Clean Mid Dirty
6.50%
15-Feb-00 101.563
100.583
101.07% #VALUE!
8.00%
15-Feb-01 102.786
102.854
102.82% #VALUE!
10.00%
15-Mar-02 108.406
108.526
108.47% #VALUE!
5.50%
15-Apr-03
96.673
96.827
96.75% #VALUE!
8.00%
15-Apr-04 105.034
105.234
105.13% #VALUE!
8.00%
15-Nov-06 106.518
106.809
106.66% #VALUE!
7.00%
15-Jul-09 100.549
100.903
100.73% #VALUE!
6.00%
15-Nov-11
91.666
92.049
91.86% #VALUE!
Total

Kurt Hess, Waikato Management School

N&S Svensson Disc

1.2

N&S Svensson Zero Rate

0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0

Model
Price
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Duration
0.9564551
1.8213216
2.6475262
3.7068991
4.2536484
5.8842077
7.5377078
8.7706032

10

Weights (wi)
0.3613016268
0.189735185
0.1305251619
0.0932231445
0.0812405626
0.0587281769
0.0458453416
0.0394008005

(cheap) / rich
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!
#VALUE!

Page 3

266369747.xls Fitting Bond Universe 04/11/2015

back to top

Formula Objective Function

min

w i=

( wi i ) 2
i=1

1 / Di

D: Duration
Pi: Price of bond i
^Pi: Model price of bond i
N: number of bonds in universe

Extended Nelson Siegel Model with Svensson (1994) beta3 extension (parameters explained on top)

rt , j ( m , ) = 0+ 1

j=1 1 / D j

^ P
i = P
i
i

Subject to:

0r ( mmin)
0r ( m= )
exp (r ( mk ) mk )exp (r ( mk +1 ) mk +1 ) mk <mmax

(
1e

m
1

) (
+ 2

(
1 e

m
1

(m )

m/

1e
+ 3
m
2

m / 2

with t , j ~ N ( 0, 2 )
= ( 0 , 1 , 2 , 3 , 1 , 2 )
Rate r at time 0 must remain positive (m min is a value just slightly larger than 0)
Rate at the end of the estimation horizon must remain positive
Discount functions must be non-increasing

References:
Nelson, C. R. & Siegel, A. F. (1987). Parsimonious modeling of yield curves, Journal of Business 60(4): 473489.
as discussed in
Bliss, R. R. (1997). Testing Term Structure Estimation Methods. Advances in Futures and Options Research(9), 197-231.
Svensson, L. (1994). Estimating and interpreting forward interest rates: Sweden 1992-4. Discussion paper, Centre for
Economic Policy Research(1051).
Anderson, N., Breedon, F., Deacon, M., Derry, A., & Murphy, G. (1996). Estimating and interpreting the yield curve.
Chichester: John Wiley Series in Financial Economics and Quantitative Analysis. Chapter 2.4.6, pgs. 36-41.

Kurt Hess, Waikato Management School

Page 4

266369747.xls Fitting Bond Universe 04/11/2015

+ t , j