Social and Behavioral Sciences Commons^™

Estimating Yield Curves By Kernel Smoothing Methods, Oliver B. Linton, E. Mammen, Jens Perch Nielsen, C. Tanggaard

Cowles Foundation Discussion Papers

We introduce a new method for the estimation of discount functions, yield curves and forward curves for coupon bonds. Our approach is nonparametric and does not assume a particular functional form for the discount function although we do show how to impose various important restrictions in the estimation. Our method is based on kernel smoothing and is defined as the minimum of some localized population moment condition. The solution to the sample problem is not explicit and our estimation procedure is iterative, rather like the backfitting method of estimating additive nonparametric models. We establish the asymptotic normality of our methods …