The Research Of Chinese Term Structure Of Interest Rate Based On Nelson-Siegel Model

In this paper, the attention has been paid to the practical problem of forecasting the yield curve, which is included in the term structure. We proposed to use the Nelson-Siegel Model to fit the fixed income data from China Market. Then we will obtain the Chinese feature of the Nelson-Siege model. So we can use this model to forecast China fixed income market and improve on this model by two ways. About research method, we will take the empirical analysis in the paper. In Nelson-Siegel Model, spot rates are generated by a differential equation, and then forward rates, being forecasts, will be the solution to the equations. A more parsimonious model that can generate the same rage of shapes is given by the solution equation for the case of equal roots. To improve on the forecasting precision, the Kalman filter is used in the fit. About research result, we get the China fixed income market feature of Nelson-Siegel model, and then analyze the forecasting effect of the Nelson-Siegel model and the extended models. In this paper, we use Kalman filter to improve on the model's precision and extend the model by two ways. We research some observable macroeconomic variables and put them into the model to improve on the precision. The improvement needs cost, so we must balance the precision and the cost in the light of research and resource.