Since these codes were written using a previous version of Matlab, version 2008 it is possible that some of the functions nolonger runs. Please send me an email if you encounter problems.
I derive an arbitrage-free four-factor term structure model that facilitates direct parameterization of the short-term interest rate process. The interplay between macroeconomic variables and the term structure via a monetary policy reaction function, in the spirit of Taylor(1993), is therefore directly supported. I show that the proposed model is a constrained member of the canonical GDTSM family proposed by Joslin, Singleton and Zhu(2011). The model's loading structure bears close resemblance to that of the Svensson and Soderlind (1997) model, but it relies only on a single non-linear shape parameter, and the model is therefore easy to estimate. An empirical application to US data covering the period from 1961 to 2017 demonstrates that the proposed model fits yields well, and that an embedded policy rule, including industrial production and the inflation rate, is statistically significant and economically meaningful during this time-period.
Note that this code may run a bit slow because it calculates spillovers for both Cholesky and Generalised FEVDs.
I implemented the Smith-Wilson model while I was working for EIOPA. However, please note that the code made available here is not identical to that currently used by EIOPA to produce risk free discount curves.
- A term structure modelling class programmed in MATLAB. It facilitates estimation of several yield curve models (e.g. dynamic Nelson-Siegel, Svensson-Soderlind, and JSZ). The term structure of term premia are also calculated. An example file is included to illustrate how to use the code, and background documentation is added as well.
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All materials on this website are provided "as is" and no warranty is given for the correct functioning of e.g. computer codes. Nothing on this website should be seen as indicating investment advice of any kind. MATLAB code and teaching materials can be downloaded and used free of charge as long as re-used materials include proper quoting of the source (i.e. me). Support is not guaranteed (but please do email me if you find bugs or have questions).
Ken Nyholm (c) - Updated January 2022