Modeling and Forecasting the Time Series of Treasury Bond Yield Curves

• Activity Number: 520
• Type: Contributed
• Date/Time: Wednesday, August 3, 2011 : 10:30 AM to 12:20 PM
• Sponsor: IMS
• Author(s): Cong Feng*+
• Companies: University of Georgia
• Keywords: functional time series ; eigenfunctions principal component analysis ; principal component analysis ; spline smoothing

Abstract

A novel method is proposed for forecasting the time series of smooth curves, using functional principal component analysis in combination with time series modeling and forecasting the scores. In this way, we can achieve the smoothing, dimension reduction and prediction at the same time with the expedient computation. The research problem is motivated by the demand to forecast the time series of economic functions, such as Treasury bond yield curves. Extensive simulation studies have been carried out to compare the prediction accuracy of our method with other competitor's methods. The proposed methodology is applied to forecasting the yield curves of UK government bond. It is the jonit work with Li Wang and Lynne Seymour.