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OP 73. Zoltán Reppa: Estimating yield curves from swap, BUBOR and FRA data


In this paper we estimate yield curves from Hungarian interest rate swap and money market data. Following general practice, we experiment with several models-differing in the functional form and objective function-and chose the model which performs best according to standard evaluation criteria. We find that the methods perform equally well in terms of residuals and out-of-sample fit; however, the smoothing spline method stands out when we consider the ability to fit the short end of the maturity spectrum, stability of estimation and plausibility of the estimated curves.

JEL: E43, G12.
Keywords: yield curve, interest rate swaps.