In this paper we test the capability of Radial Basis Function (RBF) networks to fit the yield curve under extreme conditions, namely in case of either negative spot interest rates, or high volatility. In particular, we compare the performances of conventional parametric models (Nelson–Siegel, Svensson and de Rezende–Ferreira) to those of RBF networks to fit term structure curves. To such aim, we consider the Euro Swap–EUR003M Euribor, and the USDollar Swap (USD003M) curves, on two different release dates: on December 30th 2004 and 2016, respectively, i.e. under very different market situations, and we examined the various ability of the above–cited methods in fitting them. Our results show that while in general conventional methods fail in adapting to anomalies, such as negative interest rates or big humps, RBF nets provide excellent statistical performances, thus confirming to be a very flexible tool adapting to every market’s condition.

Yield curve estimation under extreme conditions: do RBF networks perform better?

Cafferata, A.
Co-first
;
2018-01-01

Abstract

In this paper we test the capability of Radial Basis Function (RBF) networks to fit the yield curve under extreme conditions, namely in case of either negative spot interest rates, or high volatility. In particular, we compare the performances of conventional parametric models (Nelson–Siegel, Svensson and de Rezende–Ferreira) to those of RBF networks to fit term structure curves. To such aim, we consider the Euro Swap–EUR003M Euribor, and the USDollar Swap (USD003M) curves, on two different release dates: on December 30th 2004 and 2016, respectively, i.e. under very different market situations, and we examined the various ability of the above–cited methods in fitting them. Our results show that while in general conventional methods fail in adapting to anomalies, such as negative interest rates or big humps, RBF nets provide excellent statistical performances, thus confirming to be a very flexible tool adapting to every market’s condition.
2018
Neural Advances in Processing Nonlinear Dynamic Signals
Springer International Publishing
241
251
978-3-319-95098-3
Anna Esposito Marcos Faundez-Zanuy Carlo Francesco Morabito Eros Pasero; Cafferata, A.; Giribone, P. G.; Neffelli, M.; Resta, M.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/1759023
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