Università della Svizzera italiana

Accurate short-term yield curve forecasting using functional gradient descent

Audrino, Francesco ; Trojani, Fabio

In: Journal of financial econometrics, 2007, vol. 5, no. 4, p. 591–623

We propose a multivariate nonparametric technique for generating reliable shortterm historical yield curve scenarios and confidence intervals. The approach is based on a Functional Gradient Descent (FGD) estimation of the conditional mean vector and covariance matrix of a multivariate interest rate series. It is computationally feasible in large dimensions and it can account for non- linearities...