ORCID
Piotr Bartkiewicz: 0000-0003-0838-2536
Keywords
yield curve, Poland, intrapolation, spot rates
Abstract
We use a proprietary dataset of daily quotations of individual bonds from the period 2005–2018 to assess the appropriateness of three common yield curve intrapolation methods: Nelson-Siegel (NS), Diebold-Li (DL) and cubic splines. Spot (zero-coupon) yield curves derived from the methods are used to price all securities in the sample in both in-sample and out-of-sample settings. The results highlight trade-offs inherent in any empirical strategy: between flexibility and in-sample fit, between overall fit and fit in particular segments of the curve. We look at both in-sample and out-of-sample. Cubic splines offer the best in-sample fit, but out-of-sample results indicate that NS and DL curves might be a better choice for researchers interested in medium- and longer-dated securities. We also assess the usefulness of short-term interbank offered rates as proxy for the shortest part of the yield curve, finding no appreciable empirical benefit and lack of theoretical justification.
Acknowledgments
Funding
The research received no funds.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and publication of the article.
Declaration about the scope of AI utilization
The authors did not use an AI tool in the preparation of the article.
Recommended Citation
Bartkiewicz, P. (2024). Optimal Empirical Strategy for Deriving the Spot Curve: The Case of Poland. Journal of Banking and Financial Economics, 2024(2), 13-31. https://doi.org/10.7172/2353-6845.jbfe.2024.2.2
First Page
13
Last Page
31
Page Count
19
Received Date
31.07.2024
Revised Date
20.09.2024
Accept Date
13.11.2024
Online Available Date
11.12.2024
DOI
10.7172/2353-6845.jbfe.2024.2.2
JEL Code
G12; C58; H63
Publisher
University of Warsaw